major macro economic indicators
|2014||2015||2016 (f)||2017 (f)|
|GDP growth (%)||5,7||2,9||2,7||4,5|
|Inflation (yearly average) (%)||23,8||21,9||19,8||13,9|
|Budget balance * (% GDP)||-8,0||-8,0||-10,3||-8,6|
|Current account balance (% GDP)||-8,5||-8,3||-15,8||-9,3|
|Public debt (% GDP)||94,6||82,0||72,1||65,5|
(e) Estimate (f) Forecast
Tax year: July to June *grants excluded
- Natural resources (uranium, rare earths, tobacco, oil and gas)
- Rapidly growing service sector
- Support of international donors
- Member of SADC (Southern African Development Community) and COMESA (Common Market for Eastern and Southern Africa)
- Economy dominated by agriculture, vulnerability to climatic conditions
- High inflation
- Infrastructure shortcomings (water, energy)
- Low currency reserves
- Increased extreme poverty
Growth driven by agriculture and services
Economic growth declined in 2016 because of adverse climatic conditions resulting from the El Niño phenomenon, worsening the food crisis and forcing the government to declare a national state of emergency in April 2016. The agriculture sector represents 30% of GDP. Thus, whilst it will remain dependent on the emergence of favourable climatic conditions, a risingproduction of tobacco and other agricultural products is expected to drive growth in 2017. In addition, the expansion of the tertiary sector, particularly with the introduction of new technologies such as mobile banking services, should also help boost activity.
Besides, despite the suspension of uranium production in Kayelekera since 2014, the discovery of new mineral deposits in August 2015 should improve the outlook for the sector. Discussions concerning revisions to the legislation covering the sector started in 2016 with the aim of ensuring the medium-term development of these reserves.
The reduction in public spending and investment, because of limited budget resources, continues to hold back growth. In addition, demand will continue to suffer with high inflation and high interest rates. Inflation is however on a downward trajectory. It should continue to fall in 2017, with the return of food availability and the continuation of the extremely restrictive monetary policy.
A still fragile financial situation
The economy remains extremely dependent on international aid, as relations with donors have become complicated following the embezzlement scandal in which the government was embroiled in October 2013. In dealing with the decline in aid, the government adopted an austerity budget for 2015/2016. This austerity budget policy is being carried over into the 2016/2017 period. The authorities are hopeful that revenues will increase following administrative reforms and spending can be limited, mainly through a reduction in agricultural subsidies and public sector wages. The implementation of these austerity measures will be problematic in a context of food shortages and higher wage claims from public sector employees facing high inflation. The payment of a tranche of the IMF aid in summer 2016 as part of the extended credit facility program should however underpin the budget and encourage a gradual return of the donors.
The current account deficit, partly financed by aid, is likely to contract but will still be at a high level. The foreign trade balance will improve thanks to an end to the large-scale imports of maize because of the severe food shortages of 2016. Exports should start increasing in 2017, thanks to the recovery in agricultural output.
The downward pressures on the kwacha are likely to remain, as the current account deficit is still high and the flow of FDI remains limited.
A government in quest of the trust of the public and donors
In a country where defiance towards institutions is a defining characteristic, there are plenty of challenges facing the President, Peter Mutharika, elected for five years in 2014, and the ruling coalition consisting of the Democratic Progressive Party (DPP) and the United Democratic Front (UDF). The corruption scandal in 2013, the high cost of living and the inadequacies of governance and public services have led to discontentment and fears of the permanency of the political and social fragility. This latter, combined with the lack of a parliamentary majority for the ruling coalition, will continue to hinder the implementation of major economic reforms. In addition, the scale of the food insecurity linked with the droughts of the last two years represents a new risk factor for social disturbances.
The dialogue between the president and the leading international partners, does not always run smoothly. Corruption scandals have increased worries at the IMF concerning the management of the public finances and it froze its budget aid program in 2015. This prompted the country to look for external support from other countries such as India and China. In March 2016, relations between with the IMF were restored, together with the ECF program, which is scheduled to end in mid 2017.
Relations with Tanzania remain tense because of the disagreement over the Lake Malawi borders. Tensions along the border with Mozambique also re-emerged in 2016. The clashes in Mozambique between the Mozambican army and le RENAMO rebel movement lead to a mass exodus of the local population into Malawi.
The government is working to attract private investors. This includes reforms to the electricity sector. In June 2016, Parliament approved an amendment the final objective of which is to restrict the publicly owned electricity company to a power distribution role, with the generation being hived off to new entities (the Electricity Generation Company, a state-owned company to be launched shortly, and independent power producers).
In addition, progress has also been made in terms of obtaining loans and in setting up companies. The business climate will however remain weak: the country is in 133rd place out of 190 countries in World Bank’s 2017 Doing Business Index
Last update: January 2017