LILONGWE, June 29, 2016— Malawi needs to develop a better system to mitigate agricultural shocks while continuing fiscal discipline to set itself on an economic growth recovery path in 2017. This is the message of the third Malawi Economic Monitor (MEM) titled Absorbing Shocks, Building Resilience released today by the World Bank.
The MEM observes that in 2015 Malawi saw a Gross Domestic Product (GDP) growth rate of just 2.8 percent as a result of adverse weather conditions and macroeconomic instability. The double shock of drought and floods in 2015 reduced agricultural production, leading to food shortages which in turn pushed up the rate of inflation. A consecutive year of drought has led to another poor performance in the agricultural sector with continued large food shortages and GDP growth now expected to be just 2.6 percent in 2016.
According to the report, were it not for a second year of weather-related shocks, Malawi would likely be starting to see signs of a growth recovery, especially supported by the progress being made in fiscal control. It notes that efforts to consolidate public expenditure began to show positive results in 2015, with tighter control over spending, the avoidance of expenditure overruns by ministries, departments and agencies, and reduced domestic borrowing. Pilot reforms to the farm input subsidy program show promise, and if scaled up have the potential to open up fiscal space for investments in resilience and social protection.
The report notes that agriculture is important in the country’s overall economy and household food security, with Government spending about $250 million annually on this sector. However, risks associated with drought, flooding, disease, price volatility, and low levels of on-farm adoption of risk management practices and technologies, have all contributed to volatile and often negative rates of agricultural GDP growth. As Malawi increasingly looks towards breaking the cycle of vulnerability, a key medium term priority is to invest more in agricultural resilience. In the short term, a recovery to growth is possible in 2017, based on continued efforts to maintain tight control over public expenditure and borrowing.
Key ways to promote agricultural resilience include connecting farmers to markets and strengthening farmer capacity to take up risk management practices. Measures to promote freer trade in agricultural products, and to reduce price distortions and volatility would also help to boost incentives to invest and produce. Improved transparency and clearer roles of the key institutions that intervene in maize markets—namely the Strategic Grain Reserve and the Agricultural Development and Marketing Corporation—will also be needed in order to promote fairer agricultural markets.
The MEM is a series of bi-annual reports whose aim is to foster better informed policy analysis and debate regarding key challenges that Malawi needs to address in order to achieve high rates of stable, inclusive and sustainable economic growth through an in-depth analysis of economic trends and a macroeconomic outlook. The earlier editions of the MEM issued in 2015 were Managing Fiscal Pressures and Adjusting in Turbulent Times.