MALAWI

Key conditions andchallenges

Table 1

2023

Population, million

20.9GDP, current US$ billion

14.1

GDP per capita, current US$672.9

International poverty rate ($2.15)

a70.1
a89.1

a97.3

Lower middle-income poverty rate ($3.65)
Upper middle-income poverty rate ($6.85)
Gini index

a38.5

School enrollment, primary (% gross)b126.4b62.9

Total GHG emissions (mtCO2e)

21.2Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ Most recent value (2019), 2017 PPPs.
b/ WDI for School enrollment (2022); Life expectancy(2021).

Economic growth rose slightly to 1.5 percent in 2023 from 0.9 percent in 2022.
This was supported by the resumption ofelectricity production at the Kapichira hydro-electric plant, but the unavailabilityof production inputs and the impact ofTropical Cyclone Freddy constrained therecovery. Growth is estimated at 2.0 percent in 2024. This has been impacted by aprolonged dry spell and the continued
scarcity of foreign exchange. High inflation and food shortages will impact
household welfare, increasing the poverty
rate to 72 percent in 2024.

Vulnerabilities in the Malawian economy
continue to be exacerbated by weatherand climate-related shocks paired withscarcity of foreign exchange that constrains the importation of raw materials.
Recurring floods and prolonged dry spells
compounded by limited availability ofagricultural inputs and weak domestic
and regional market integration keep
agricultural output below its potential.
Persistent liquidity challenges and distortions in foreign exchange markets continue to constrain the importation of raw
materials for the production process, further undermining growth.
A lack of trade dynamism and low levels ofinvestment persist. Lower agricultural output and slow implementation of policies tosupport crop diversification and economictransformation constrain exports, as does
the widespread presence of non-tariff barriers, strict capital controls, and high trade
costs. These in turn affect the accumulationof foreign exchange reserves. With continued high import demands, the current account deficit remains elevated, placing additional pressure on reserves.
Fiscal imbalances have been a central challenge to reducing inflation, following yearsof an expansionary fiscal policy. Slow implementation of public financial management reforms, paired with growing statutory expenditure requirements continue
to exert upward pressure on government

FIGURE 1 Malawi / Fiscal balance and public debt aspercent of GDP
Percent of GDP
141210864
20-2-4-6-8-10-12expenditure. With limited availability of
external financing and high levels of domestic borrowing, public debt continues torise, resulting in debt servicing requirements in excess of 35 percent of revenues.
The prevalence of poverty remains high,with rates exceeding 70 percent - one of
the highest in the world. The continued
high rate of poverty is exacerbated by asluggish economic recovery and persistent
food shortages following a series of weather shocks, high susceptibility to fluctuations in food prices, and ongoing rapid
population growth.

Recent developments
The impact of Tropical Cyclone Freddy andthe limited availability of agriculture inputs
weighed on agricultural production in 2023.
While low liquidity and persistent unavailability of foreign exchange constrained importation of raw materials for production,
the early resumption of electricity production at Kapichira supported improved economic activity in industry and services,
contributing to an estimated economic
growth rate of 1.5 percent in 2023.
Weak export recovery amidst high imports
and low foreign investment has resulted in acurrent account deficit of 16.1 percent of
GDP.Grossofficialreservesremainedbelow
1 month of import cover throughout 2023.
To help restore foreign exchange reserves inlate 2023, the Reserve Bank of Malawi (RBM)
announced the 44 percent adjustment ofkwacha-US dollar exchange rate, together
with several measures to increase theFIGURE 2 Malawi / Actual and projected poverty rates andreal GDP per capita
Poverty rate (%)

Percent of GDP
90

Real GDP per capita (constant LCU)

12070

390000380000100

503700008030
1036000060

350000-10-3040-50

20340000330000320000

-70
2010

2012

2014

2016

Fiscal Balance (lhs)

2018

2020

2022

2024

2026

0-90

Public Debt (rhs)

Sources: Ministry of Finance, Economic Planning and Development, and World Bank.

MPO

3100002010 2012 2014 2016 2018 2020 2022 2024 2026
International poverty rate

Lower middle-income pov. rate

Upper middle-income pov. rate

Real GDP pc

Source: World Bank. Notes: see Table 2.

1

Apr 24

kwacha flexibility. The exchange rate premium significantly narrowed at the end of2023, from 60 to around 10 percent.
Inflation remains high. Despite the RBM’sefforts to tackle mounting inflation by
tightening monetary policy, persistently
high food prices owing to shortages on thedomestic market, coupled with the delayed depreciation of the Malawi kwacha,
resulted in substantial inflationary pressures. With money supply growth increasing, driven mainly by the revaluation benefits on foreign currency denominated deposits, inflation has remained at around33.5 percent since February 2024.
Supported by exchange rate gains on tradetaxes, disbursements of grants, and remittance of dividends, revenue collection increased to 17.2 percent of GDP in fiscalyear (FY) 2023/24. However, higher-thanplanned expenditures, reaching 29.0 percent of GDP in FY 2023/24, will partially
offset improved revenue performance,
pushing the fiscal deficit to 11.7 percentof GDP. This has predominantly been financed by the incurrence of domestic liabilities, mostly from the banking sector, in turncrowding out credit to the private sector.
The continuous rise in prices, especiallyfor food and transportation, has adversely
affected household consumption. Coupledwith food shortages, this has exacerbatedfood insecurity and pushed many intopoverty in 2023. The proportion of people
living on less than $2.15 per day increased
to 71.7 percent in 2023.

Outlook
Malawi’s economy is projected to grow by
2.0 percent in 2024 – a contraction in percapita terms given 2.6 percent population
growth. Limited availability of agricultural
inputs and the impact of prolonged dryspells during the growing season will result in reduced agricultural output. Continued liquidity challenges in foreign exchange markets are expected to continue
affecting the importation of raw materials
and productions inputs, constraining economic activity in industry and services.
Headline inflation is expected to remainhigh and average 27.4 percent in 2024. The
disinflationary impact of tightening monetary policy will be offset by lower agricultural output and resultant pressures onfood prices. The adjustment of energy andother utility prices necessitated by the adjustment of the kwacha and planned for2024 will add to inflationary pressures.

TABLE 2 Malawi / Macro poverty outlook indicators

Revenue is projected at 21.5 percent ofGDP in FY2024/25. This outcome assumes the achievement of ambitious tax
revenue targets as well as increased disbursements of grants which are expected
to reach 5.4 percent of GDP, the highest
in the last decade. Expenditure is expected to slightly moderate to 28.4 percent of GDP, thus translating to a projected fiscal deficit of 6.6 percent of GDP
in FY2024/25. Failure to attain ambitious
revenue targets and overspending would
widen the deficit further, which will add
to an already high and unsustainablepublic debt burden.
Imports are expected to continue rising,driven in particular by the need for increased food imports to address domestic
shortages. While exports are also projected
to recover, the impact of prolonged dry
spells on agricultural production may constrain export growth. The current accountdeficit is projected to remain high at 20
percent of GDP.
With heightened food insecurity, bothfrom high food prices and shortages owing
to anticipated lower agriculture output,
poverty is expected to worsen in 2024. The
proportion of people living below thepoverty line of $2.15 a day will increaseslightly to 72 percent in 2024.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market prices
Private consumption
Government consumption
Gross fixed capital investment
Exports, goods and services
Imports, goods and services

2021
2.8
2.6
-1.1
6.5
2.5
2.5

2022
0.9
0.6
-5.8
12.4
3.1
3.9

2023e
1.5
3.8
14.8
-15.0
3.5
3.9

2024f
2.0
4.0
6.9-2.5
8.8
9.6

2025f
3.9
4.8
-2.3
6.3
6.7
6.3

2026f
4.1
5.1
6.9
-9.4
6.0
3.9

Real GDP growth, at constant factor prices
Agriculture
Industry
Services

2.8
5.2
1.9
2.0

0.9
-1.0
0.9
1.8

1.5
0.6
1.6
1.9

2.0
-1.2
2.2
3.2

3.9
3.7
3.3
4.2

4.1
3.0
3.1
4.8

Inflation (consumer price index)

9.3

20.9

28.7

27.4

20.8

16.7

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

-15.2
0.8

-17.3
1.6

-16.11.5

-20.0
2.1

-19.6
2.3

-17.9
2.5

Fiscal balance (% of GDP)
Revenues (% of GDP)
Debt (% of GDP)
Primary balance (% of GDP)

-6.9
14.7
60.6
-3.1

-8.9
15.0
76.7
-3.6

-10.3
15.3
81.4
-3.9

-11.8
17.2
80.7
-7.1

-7.3
21.1
79.8
-1.1

-7.3
17.7
76.4
-2.3

70.6
89.4
97.4

71.3
89.5
97.5

71.7
89.7
97.5

72.0
89.8
97.5

71.4
89.6
97.5

70.9
89.4
97.4

1.5
7.6

1.4
7.6

1.4
7.7

1.4
7.7

1.3
7.7

1.4
7.7

a,b

International poverty rate ($2.15 in 2017 PPP)a,b
Lower middle-income poverty rate ($3.65 in 2017 PPP)a,b
Upper middle-income poverty rate ($6.85 in 2017 PPP)
GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Calculations based on 2019-IHS-V. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026.
b/ Projection using neutral distribution (2019) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU.

MPO2Apr 24