Annual Economic Report 2017

Malawi Government ANNUAL ECONOMIC REPORT 2017 Ministry of Finance, Economic Planning and Development 2 ANNUAL ECONOMIC REPORT 2017 Ministry of Finance, Economic Planning and Development Department of Economic Planning and Development P.O. Box 30136, Lilongwe 3. Telephone: (265) 1 788 888 Fax: (265) 1 788 247 E-mail: [email protected] 4 TABLE OF CONTENTS CHAPTER . PAGE Chapter 1: The World Economic Outlook . 1 Chapter 2: Macroeconomic Performance in 2015 and Prospects for 2016 and 2017 . 7 Chapter 3: Agriculture and Natural Resources . 22 Chapter 4: Irrigation and Water Development . 43 Chapter 5: Transport and Public Infrastructure . 50 Chapter 6: Mining and Quarrying . 57 Chapter 7: Energy . 65 Chapter 8: Trade and Private Sector Development . 78 Chapter 9: Education . 93 Chapter 10: Tourism . 106 Chapter 11: Intergrated Rural Development . 111 Chapter 12: Public Health, Nutrition, HIV and Aids Management . 122 Chapter 13: Youth Development, Sports and Culture . 134 Chapter 14: Climate Change and the Environment . 140 Chapter 15: Employment, Gender, Community and Social Welfare . 149 Chapter 16: Social Support and Poverty Reduction Programmes . 163 Chapter 17: Public Enterprises . 166 Chapter 18: Banking and Finance . 190 Chapter 19: Public Finance . 193 6 Chapter 1 THE WORLD ECONOMIC OUTLOOK 1.1 International Economic Outloo k Global Gross Domestic Product (GDP) growth was estimated at 3.1 percent in 2016 from 3.2 percent in 2015. The growth is projected to pick up to 3.5 percent in 2017 and 3.6 percent in 2018. However, the impacts of the United States policies and Brexit on the global economy remain uncertain. 1.1.1 World Output Developments in 2016 Growth in advanced economies slowed down to 1.7 percent in 2016 from 2.1 percent in 2015. The growth in 2016 was stronger than earlier anticipated. The rebound in economic activities in the United States significantly contributed to the growth. Despite the Brexit vote, the United Kingdom (UK) and Spain also registered a stronger growth than anticipated. However, estimated output of some countries, especially in the Euro area, was below the potential level. Going forward, growth is projected to remain constant at 2.0 percent in 2017 and 2018 (Refer to Table 1.1 below). TABLE 1.1: WORLD OUTPUT (ANNUAL PERCENTAGE CHANGE) 2015 2016 2017 2018 Global Growth 3.2 3.1 3.5 3.6 Sub-Saharan Africa 3.4 1.4 2.6 3.5 Advanced Economies 2.1 1.7 2.0 2.0 United States of America 2.6 1.6 2.3 2.5 Euro Area 2.0 1.7 1.7 1.6 Japan 1.2 1.0 1.2 0.6 United Kingdom 2.2 1.8 2.0 1.5 Canada 2.4 2.5 1.9 2.0 Emerging Market and Developing Economies 4.2 4.1 4.5 4.8 Developing Asia 6.4 6.4 6.4 6.4 China 6.9 6.7 6.6 6.2 India 7.9 6.8 7.2 7.7 Commonwealth of Independent States -2.2 0.3 1.7 2.1 Emerging and Developing Europe 4.7 3.0 3.0 3.3 Latin America and the Caribbean 0.1 -1.0 1.1 2.0 Middle East and North Africa 2.7 3.9 2.6 3.4 Source: IMF World Economic Outlook April 2017 Growth in emerging market and developing economies (EMED) was 4.1 percent in 2016. Output is projected to increase by 4.5 percent and 4.8 percent in 2017 and 2018, respectively. In 2016, growth was underpinned by the economic growth in China and India. In addition, Russia experienced a stronger growth than expected 1 on account of improved oil prices. However, the overall growth in EMED was slowed down by recession in a number of Latin American countries, such as, Argentina and Brazil. 1.1.2 World Output Prospects for 2017 and 2018 The global output growth is expected to pick up to 3.5 percent and 3.6 percent in 2017 and 2018, respectively. This is primarly due to recovery in investment, manufacturing and trade. The growth in 2017 will be driven by a rebound in advanced economies as a result of an improvement in oil and non-oil commodity prices. Good prospects for the EMED are expected in 2017 and 2018 with output growth of 4.5 percent and 4.8 percent, respectively. The recovery of commodity prices is likely to improve the terms of trade. 1.2 Regional Output 1.2.1 Regional Output Developments in 2016 Growth in sub-Saharan Africa was estimated at 1.4 percent in 2016 from 3.4 percent in 2015. The slowdown was due to a decline in commodity prices, geopolitical tension, domestic conflicts and protracted effects of drought. (See Table 1.2 below). TABLE 1.2: REGIONAL OUTPUT (ANNUAL PERCENTAGE CHANGE) 2015 2016 2017 2018 Global Growth 3.4 3.1 3.5 3.6 Sub-Saharan Africa 3.4 1.4 2.6 3.5 Tanzania 7.0 6.6 6.8 6.9 Zambia 2.9 3.0 3.5 4.0 Malawi 3.3 2.7 6.1 5.0 Mozambique 6.6 3.4 4.5 5.5 Zimbabwe 1.1 0.5 2.0 -1.5 South Africa 1.3 0.3 0.8 1.6 Nigeria 2.7 -1.5 0.8 1.6 Source: IMF World Economic Outlook April 2017 1.2.2 Regional Output Prospects Growth prospects in sub-Saharan Africa for 2017 and 2018 are expected at 2.6 percent and 3.5 percent, respectively. The growth will be driven by improvements in oil and non-oil commodity prices. In addition, the favourable weather conditions the region has experienced so far, has subsided the effects of the drought which occurred in 2016. 2 1.3 Global Price Developments 1.3.1 Inflation and World Commodity Prices in 2016 Inflation has been rising in many economies over the past few years due to increase in commodity prices. In advanced economies, inflation slightly rose to 0.8 percent in 2016 from 0.3 percent in 2015. In emerging markets, inflation slightly declined from 4.7 percent in 2015 to 4.4 percent in 2016. On the other hand, inflation was more pronounced in the sub-Saharan Africa economies. Inflation increased to 11.4 percent in 2016 from 7.0 percent in 2015, due to exchange rates depreciation. (See Table 1.3 below). TABLE 1.3: CONSUMER PRICES AND WORLD COMMODITY PRICES (ANNUAL PERCENTAGE CHANGE) 2015 2016 2017 2018 Consumer Prices Growth Advanced Economies 0.3 0.8 2.0 1.9 Emerging Markets and Developing Economies 4.7 4.4 4.7 4.4 Sub Saharan Africa 7.0 11.4 10.7 9.5 Source: IMF World Economic Outlook April 2017 1.3.2 Inflation and World Commodity Price Prospects for 2017 and 2018 In advanced economies, inflation is projected to increase to 2.0 percent and 1.9 percent in 2017 and 2018, respectively. In EMED economies, inflation is projected to increase to 4.7 percent in 2017 and slightly decline to 4.4 percent in 2018. The likely increase in inflation will mainly be due to the impact of the rising oil and non-oil commodity prices. In addition, the currency depreciation and rebound in economic activities, particularly in EMED economies, will contribute to the rising inflation. In sub-Saharan Africa economies, inflation is projected to remain high in 2017 with a slight decline in 2018. In 2017 inflation is projected at 10.7 percent and is expected to slightly decline to 9.5 percent in 2018. The high inflation in the region is mainly due to the effects of currency depreciation. Oil prices increased by 20 percent during the second half of 2016 and early 2017. The increase was partly due to reduction in production by the Oil Producing and Exporting Countries (OPEC). In 2017 and 2018, oil prices are projected at $55.23 per barrel and $55.06 per barrel, respectively. Similarly, non-oil commodity prices are projected to increase in 2017. 3 1.4 Global Financial Sector 1.4.1. Global Financial Sector Developments in 2016 Financial market volatility, which had been worse in the second quarter of 2016, following the U.K. vote to leave the European Union, had generally been contained by the end of the third quarter in 2016. However, there are many mid-term risks that are rising including accommodative monetary policy (particularly prolonged low interest rates) in advanced economies, which may suffocate profitability and solvency of financial institutions. In addition, Emerging Markets and Developing Economies faced a challenge of high corporate leverage and complexity of financial products. TABLE 1.4: LONDON INTERBANK OFFER RATES (PERCENTAGE) 2015 2016 2017 2018 London Interbank Offered Rate (LIBOR) On US Dollar Deposits (six months) 0.5 1.1 1.7 2.8 On Euro Deposits (six months) 0.0 -0.3 -0.3 -0.2 On Japanese Yen deposits (six months) 0.1 0.0 0.0 0.0 Source: IMF World Economic Outlook April 2017 Monetary policy in advanced economies remained accommodative in response to weak inflation, which is still below the target. The market experienced an increase of 0.25 percent in interest rates by the Federal Reserve in the last quarter of 2016. On the other hand, the Bank of England cut the policy rate, boosted quantitative easing and undertook a number of other initiatives to contain the spillover effects of the referendum. During the early part of the second quarter of 2016, bonds had declined in U.S and Germany by 30 to 25 basis points and U.K’s gilts had declined by 90 basis points.

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