AfDB paints gloomy growth outlook
The African Development Bank (AfDB) says the country’s medium-term growth outlook remains highly uncertain due to the impact of the Russia-Ukraine conflict and the March 2023 Cyclone Freddy.
In its November 2023 Malawi Country Strategy Paper, the bank says a lower than previously expected growth rebound in 2023 of two percent is now forecast, driven by a recovery in agriculture, tourism and exports, and foreign direct investment (FDI) are now in doubt due to the damage caused by the cyclone.
AfDB says downside risks to economic growth include weak aggregate demand, reduced import capacity due to foreign currency shortages and continued disruptions in global logistics and a subdued global economy.
Reads the paper in part: “Malawi’s economy has shown limited structural transformation over the last two decades.
“Diversifying to other sectors such as manufacturing, mining and services has been hindered by costly transport costs, erratic energy supply and low productivity; hence, the loss in its competitiveness.”
The bank observes that while Malawi 2063, the country’s long-term development strategy, seeks to reverse these developments through a renewed focus on mega farms, commercialisation of agriculture and enhanced diversification through agro-industrial activities, the weak linkages between the manufacturing and agricultural sectors as well as lack of competitiveness and policy inconsistency have limited investment opportunities in the country.
According to AfDB, growing public expenditure in the face of substantial declines in government revenue has widened the fiscal deficit in the current financial year.
The data shows that except for the improvement of the fiscal deficit in 2019 to 4.6 percent of the gross domestic product (GDP) from 5.5 percent of GDP in 2018, the situation has worsened with fiscal deficits above seven percent for the last three years to 2022.
Meanwhile, the Malawi Government is implementing a Domestic Revenue Mobilisation Strategy 2021/26 to increase tax revenue.
However, revenue collection has continued to decrease from 21.1 percent of GDP in 2020 to 16.4 percent in 2021 and further down to 12.1 percent in 2022, according to AfDB data.
In his 2023/24 Mid-Year Budget Review Statement, Minister of Finance and Economic Affairs Simplex Chithyola Banda conceded that consistent with the downturn in global economic growth, the country’s growth prospects have been equally affected with real GDP growth for 2023 estimated at 1.5 percent, a downward revision from 2.7 percent projected at the beginning of this fiscal year.
The MW2063 seeks to transform Malawi into a wealthy and self-reliant industrialised upper middle-income country by 2063
The blue print also projects that if the economy grows at an annual average rate of six percent, Malawi could attain the low middle-income status by 2030, with a per capita income of between $1 006 (about K1.7 million) and $3 955 (about K6.7 million).
