The World Bank has advised government to carefully balance its efforts on macroeconomic management and fiscal consolidation with meeting humanitarian needs if the country’s economic growth is to return to normal.
In its fourth edition of the Malawi Economic Monitor (MEM 4) titled Emerging Stronger, the Bretton Woods institution has noted that the country expects low economic growth in 2016 at around 2.5 percent, largely due to two consecutive years of drought, which have adversely affected the performance of the agriculture sector, that contributes about 30 percent to gross domestic product (GDP).
The bank said Malawi’s short-term challenge is to effectively manage the looming humanitarian crisis while at the same time safeguarding macro-economic balances and ensuring a smooth transition to medium-term drought recovery and resilience.
World Bank senior country economist responsible for macroeconomics and fiscal global practice Richard Record in an interview said government’s challenge is to continue to undertake micro-economic stabilisation and improve the fiscal management situation, reduce the size of deficit which should see interest and inflation rates coming down.
“We know it is very difficult to do this and manage humanitarian assistance at the same time.
“What we hope for is that in 2017, drought followed by El-nino could result in increased rainfall and with increased rainfall, we can see agriculture recovery and if government continues to manage fiscal situation in a proven manner, then we can manage recovery and growth in 2017,” he said.
Record said the challenge is getting beyond short-term challenges which include weather shocks and if government can undertake a number of measures to address the shocks, the country can experience growth.
Two years of drought across the country and localised flooding have increased pressure on the already weak economy, which was still adjusting to the impact of Cashgate, the plunder of taxpayer’s money at Capital Hill which was uncovered in 2013.
The World Bank says although in recent years Malawi has made some encouraging progress in terms of human development, the achievement of sustained poverty reduction in rural areas has been difficult, with poverty rates remaining stagnant.
The MEM has suggested several measures to build resilience of poor rural populations and to help them emerge stronger against climate shocks, which include a more balanced expenditure on the agriculture sector, reforming of subsidy schemes with practical measures to boost agricultural productivity and encourage greater commercialisation.
Government should also look at improving the efficiency and effectiveness of social safety net programmes with better targeting and reduced leakages.
Minister of Finance, Economic Planning and Development Goodall Gondwe is on record having said that the 2013 Cashgate in which K24 billion could not be accounted for has had a long impact on the country’s economy.
The MEM is a series of biannual reports providing an analysis of economic and structural development issues in Malawi with the aim of fostering better informed policy analysis and debate. n