The World Bank has projected that ravaging floods that hit the country early this year will cost the economy 0.56 percent in 2015 in terms gross domestic product (GDP) growth.
However, through its publication called Malawi Economic Monitor, the World Bank has downplayed such a reduction in the side of the economy as measured by GDP, saying the impact is ‘muted’ and will be offset by recovery and reconstruction work underway.
Malawi’s total wealth as measured by GDP, in nominal value, is estimated at K2.2 trillion; hence, The Nation’s rough calculation shows that going by the World Bank estimate, the floods will cost the economy about K12 billion.
An estimated 89 000 hectares of cropland was destroyed by the floods, representing around 2.4 percent of total agricultural land in Malawi.
However, the Bank’s report—prepared by World Bank senior country economist for Malawi Richard Record, country economist Priscilla Kandoole and Mombert Hoppe, trade economist from the Trade and Competitiveness Global Practice—estimates that the country is expected to grow by 5.1 percent this year.
Reads the report in part: “While the human costs of the January 2015 floods in southern Malawi are significant, the economic impact is likely to be more muted.”
In 2014, the rate of GDP growth stood at 5.7 percent, a modest increase compared to the rate of 5.2 percent recorded in the previous year, according to World Bank estimates.
The relatively high rate of economic growth recorded in 2014 was primarily driven by the growth of the agricultural, information and communication technology as well as wholesale and retail trade sectors.
“Estimates from the Post-Disaster Needs Assessment put the total value of damage and losses, including to agricultural crops, housing, commerce and public infrastructure at around $324 million [K145 billion], an equivalent to five percent of GDP,” says the Bank’s publication.
Production of key cash crops—tobacco, tea and sugar—has not been affected by the floods, according to the report.
Initial fears of disruption to Malawi’s key economic infrastructure, particularly its power generating, water supply and transport appear to have receded, they say.
The publication says high rates of poverty and vulnerability among the population in the affected areas point to the need to improve resilience and safety nets.
Last week, Record said although the prospects for growth in 2015 and 2016 were generally positive, there are a number of significant downside risks.
He said: “In particular, the rate of inflation, while beginning to trend downwards, has remained persistently high, at 19.7 percent in February 2015. Lending rates, which have fluctuated above 35 percent, also remain high, while the government’s fiscal position remains weak in an already constrained environment.”
Minister of Finance, Economic Planning and Development Goodall Gondwe told Business News recently that prior to the disaster that hit the country earlier this year, the forecast was that inflation—which averaged 23.8 percent in 2014—would steadily fall as it does seasonally during the harvest season beginning in April or May.
“But the after-effects of the disaster has shattered all these expectations that would have seen the achievement of normality during the third quarter of 2015,” he said.