The World Bank has forecast a negative economic growth for the sub-Saharan Africa region, including Malawi, stating that it is set to suffer a first recession in 25 years.
The World Bank has forecast growth in the range of -2.1 and -5.1 percent in 2020 due to the novel coronavirus (Covid-19) pandemic.
The latest analysis by the Bretton Woods institution also shows Covid-19 will cost the region between $37 billion and $79 billion in output losses due to a combination of effects.
With Malawi’s total wealth as measured by nominal gross domestic product (GDP) estimated at around $8 billion (about K6 trillion), this means that the $79 billion estimated loss in output is almost 10 times Malawi’s total aggregated wealth as measured by GDP.
The estimations are contained in the Africa’s Pulse, the World Bank’s twice-yearly economic update for the region.
According to the World Bank, Malawi and other sub- Saharan countries are poised to suffer from a ‘combination of effects’ including trade and value chain disruption, reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, as well as disruptions caused by containment measures and the public response.
World Bank fears are also in line with earlier warnings by some local commentators who have argued that under
economic output is likely going to be severely dented this year due to the outbreak, among other several other negative impacts. the current circumstances,
In a statement issued yesterday by the World Bank, quoting its vice-president for Africa Hafez Ghanem, the bank says although most countries in the region have been affected to different degrees by the pandemic, real GDP is projected to fall sharply particularly in the region’s three largest economies – Nigeria, Angola, and South Africa.
Malawi’s projected real GDP this year was seen at five percent, but economic analysts contend that such a projection now remains an illusion in the wake of the pandemic.
The pandemic, the World Bank also forewarns, has the potential to spark a food security crisis in Africa, with agricultural production estimated to potentially contracting between 2.6 percent in an optimistic scenario and up to 7 percent if there are trade blockages.
Speaking separately to African journalists through a Facebook chat, Albert Zeufack, chief economist for Africa at the World Bank, said the bank was pleased that most countries in the region are opting for a combination of emergency fiscal and monetary policy actions with many central banks in the region taking important actions like cutting interest rates and providing extraordinary liquidity assistance.
Last week, Reserve Bank of Malawi (RBM) slashed its Liquidity Reserve Requi r ement (LRR) as well as its Lombard rate, a deliberate ploy to immediately boost liquidity in the banking system and lower the cost of funds to commercial banks-an incentive to support those economic sectors that have been severely bruised by the pandemic.
The central bank cut LRR-mandatory deposits that banks make at the central bank but does not earn interest-on domestic currency deposits by 125 basis points to 3.75 percent releasing liquidity of about K12 billion in the local financial system. from five percent, immediately
The Lombard rate was also cut by 50 percent to 20 basis points above the policy rate-which is steady at 13.5-effectively lowering the cost of accessing funds from RBM.
In an interview yesterday, Economics Association of Malawi (Ecama) executive director Kettie Nyasulu shared the World Bank analysis, stressing that the pandemic will likely inflict intertwined shocks on Malawi such as drop in both domestic and external demand, a reduction in trade, disruption in supply chain, a fall in consumer confidence, a decline on commodity prices, contraction in tourism as well as a sharp tightening of global financial conditions.
She said: “The magnitude of decrease in the growth prospects will depend on whether the Covid-19 is contained in the short or medium-term.”
Weighing in, a Lome-based policy specialist for International Trade Union Confederation (Africa Office) Alex Nkosi worried that as the country braces up to face the existential crisis that Covid-19 threatens to impose, Malawi stands completely exposed with its weak public services and social protection.