The International Monetary Fund (IMF) says the country’s gross domestic product (GDP) per capita or income per person could narrow by 1.8 percent as Covid-19 pandemic threatens to slow the country’s growth.
The IMF’s June Regional Economic Outlook for sub Saharan Africa, which puts Malawi GDP growth at one percent, says the standard of living will fall to about $392 (about (K290 672) this year from around $400 (K296 000).
The report titled A Cautious Reopening says outlook for 2020–21 is considerably worse than expected in April and it reflects a weaker external environment and measures to contain the Covid-19 outbreak, which have been accelerating in the past few weeks in several sub-Saharan Africa countries, including Malawi.
Reads in part the report: “Economic activity this year is now projected to contract by some 3.2 percent, markedly worse than the 1.6 percent contraction anticipated in April.
“On average, per capita incomes across the region will fall by seven percent relative to expected levels back in October 2019 and close to levels seen nearly a decade ago.”
The IMF has since warned that the downside risks could materialise if health systems are overwhelmed, given that many economies have reopened before the infection has peaked.
Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira, in an interview on Tuesday, indicated that the bank is assessing the Covid-19 impact on growth, with one percent growth put as the worst-case scenario.
He admitted that the GDP per capita would decline this year.
Said Ngwira: “The Covid-19 pandemic is a health issue and we take cue from health authorities. At the moment, we do not know how it is going to develop or end.
“However, in our worst- case scenario, we expect growth to be around one percent or even go into recession. This definitely will have a negative effect on the GDP per capita and livelihoods of Malawians.”
Malawi’s GDP per capita has been stagnant for some years, a reflection that poverty levels in the country have not changed at about $400 in a year.
This is despite that key macroeconomic indicators have largely remained stable and favourable due to what authorities have attributed to sound economic policies.
For instance, inflation rate has largely been in single digit and interest rates have also declined following cuts in policy rate to 13.5 percent.
Further to this, the kwacha has also remained stable at around K740 to a dollar.
The Covid-19 pandemic is, however, threatening the macroeconomic environment with IMF projecting that the pandemic is likely a cause the first increase in global poverty since 1998.
The World Bank estimates indicate that in sub-Saharan Africa, the pandemic could push about 26 million more people into extreme poverty in 2020 and up to 39 million in case downside risks to growth materialise.
The Bretton Woods institution further said that income inequality is expected to increase as lockdowns disproportionately affected informal sector workers and small and medium-sized companies in the services sectors.
Chancellor College economics professor Ben Kaluwa said in an interview that the agriculture sector remains the biggest single contributor to the country’s economic growth, but the Covid-19 pandemic threatens to disrupt agricultural value chains on top of other sectors.