Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized MALAWI ECONOMIC MONITOR JUNE 2019 CHARTING A NEW COURSE World Bank Office Malawi Mulanje House Capital City, PO Box 30557 Lilongwe 3, Malawi +265 (0) 1 770 611 www.worldbank.org/mw Acknowledgements This edition of the Malawi Economic Monitor was prepared by Priscilla Kandoole (Country Economist); Patrick Hettinger (Senior Country Economist); Angela Zeleza (Consultant); Sunganani Kalemba (Consultant); Efrem Chilima (Senior Private Sector Specialist); Laston Manja (Consultant); and William Mwanza (Consultant). Time Fatch (Senior Agriculture Economist); Habtamu Fuje (Economist); Francis Nkoka (Senior Disaster Risk Management Specialist); Deborah Isser (Lead Governance Specialist); Michael Roscitt (Public Sector Specialist); Innocent Mulindwa (Senior Education Specialist); Salman Asim (Senior Economist); Miriam Schneidman (Lead Health Specialist); Chipo Msowoya (Social Protection Specialist); Kagaba Paul Mukiibi (Energy Specialist); Josses Mugabi (Senior Water Supply and Sanitation Specialist); Colin Andrews (Program Manager); Boban Paul (Young Professional); Ross Hughes (Senior Natural Resource Management Specialist) and Simon Croxton (Consultant) provided additional contributions. Abebe Adugna (Practice Manager, Macroeconomics, Trade and Investment); Greg Toulmin (Country Manager, Malawi); and Bella Bird (Country Director, Malawi) provided overall guidance. The team wishes to thank Yutaka Yoshino (Program Leader); William Battaile (Lead Economist); and peer reviewers Richard Record (Lead Economist); Samson Kwalingana (Senior Economist); Muna Meky (Program Leader); and Michael Stevens (External Peer Reviewer) for their constructive inputs. This report benefited from fruitful discussions, comments and information provided by representatives of the Ministry of Finance, Economic Planning and Development; the Reserve Bank of Malawi; the National Statistical Office; the Malawi Revenue Authority; and a number of other Government Ministries, Departments and Agencies. The team would also like to thank representatives of the private sector in Lilongwe and Blantyre for their helpful contributions. Zeria Banda (Communications Officer); Andrew Massa (Consultant); Gloria Chinguo (Team Assistant); and Tinyade Kumsinda (Team Assistant) provided assistance with external communications, design and additional production support. Irfan Kortschak (Consultant) provided editorial support. The findings, interpretations, and conclusions expressed in this publication do not necessarily reflect the views of the World Bank’s Executive Directors or the countries they represent. The report is based on information current as of May 2019. The World Bank team welcomes feedback on the structure and content of the Malawi Economic Monitor. Please send comments to Priscilla Kandoole ([email protected]) and/or Patrick Hettinger ([email protected]). Cover Photo Credit: NALI Foods Factory in Luchenza Cover Design: Deguzman Kaminjolo, Hi Resolution Graphix, Blantyre. TABLE OF CONTENTS 1. Economic Developments ............................................................................................................................................. 5 1.1 Recent Developments ................................................................................................................................................... 5 Sub-Saharan Africa set to recover despite weak global economy ............................................................................ 5 Malawi poised for economic recovery despite destruction from Cyclone Idai ........................................................ 7 Malawi continues to be stuck in a poverty trap .............................................................................................................. 8 The FY2018/19 mid-year fiscal deficit target was missed ............................................................................................. 10 Domestic debt continues on an upward trend ............................................................................................................. 15 Inflation remained stable aided by a steady exchange rate .................................................................................... 16 RBM interventions helped support exchange rate and price stability ...................................................................... 17 The banking sector is resilient as industry wide capital and liquidity improves ........................................................ 17 Government borrowing continues to outpace private sector credit ........................................................................ 18 Malawi’s export base remains heavily dependent on tobacco ................................................................................ 20 1.2 Macroeconomic Outlook and Risks .......................................................................................................................... 21 Diversify the economy and increase fiscal restraint to reduce vulnerability to shocks .......................................... 21 Risks remain high, as the economy remains vulnerable to external and domestic shocks ................................... 22 Policy and institutional actions are needed to change the patterns of growth ..................................................... 22 2. Special Topic: Charting a New Course ..................................................................................................................... 23 Theme 1: Establish the foundations for growth with supportive macroeconomic policies and a results- oriented public service ....................................................................................................................................................... 23 Strengthen macroeconomic and fiscal policies ...................................................................................................... 24 Strengthening institutions to deliver results ................................................................................................................ 25 Theme 2: Transform the economy and increase growth to create jobs and ensure food security .................... 27 Unlocking the potential of the private sector ........................................................................................................... 27 Increasing agricultural productivity and diversification .......................................................................................... 29 Improving access and quality of energy & water services .................................................................................... 31 Theme 3: Strengthening human capital ......................................................................................................................... 33 Improving education access, quality, and equity ................................................................................................... 34 Addressing an unfinished fertility and stunting agenda ......................................................................................... 35 Theme 4: Developing systems to increase resilience to shocks ................................................................................. 38 Realizing the potential of safety nets in Malawi ....................................................................................................... 38 Breaking the cycle of environmental degradation and increasing resilience ................................................... 39 What will it take to chart a new course towards a vibrant economy and jobs? .................................................... 41 Data .................................................................................................................................................................................... 43 References ......................................................................................................................................................................... 44 MALAWI ECONOMIC MONITOR JUNE 2019 BOXES Box 1: Impact of Tropical Cyclone Idai on Malawi ............................................................................................................... 6 Box 2: Cost Implications of a Universal Fertilizer Subsidy in Malawi .................................................................................. 12 Box 3: Digital systems in Malawi’s financial architecture ................................................................................................... 19 FIGURES Figure 1: Share of Disaster Recovery Needs across Sectors in USD million ........................................................................ 6 Figure 2: Stronger growth is anticipated as all sectors recover…....................................................................................... 7 Figure 3:… maize production resilient despite the devastation caused by Cyclone Idai ............................................. 7 Figure 4: The impact of Cyclone Idai has been the highest on districts with the poorest populations ....................... 9 Figure 5: Change in Poverty after Cyclone Idai .................................................................................................................. 10 Figure 6: Revenue collection has mostly met targets ........................................................................................................ 11