A new Country Economic Memorandum for Malawi released by the World Bank Group has outlined key constraints to the country’s economic growth, with a stern call for an immediate repositioning to reverse negative outcomes.
The challenges include microeconomic instability and poor fiscal management, lack of change in the agriculture sector and constraints to private sector development, which are leading to limited employment creation.
According to the World Bank, authorities need to improve understanding of the puzzle of Malawi’s weak performance and identify ways for Malawi to achieve robust and stable growth.
The report indicates that, despite decades of development efforts supported by significant amounts of foreign aid, Malawi has experienced weak and volatile economic growth over a sustained period of time and has fallen behind its peers.
Malawi’s real per capita gross domestic product grew at an average of around 1.5 percent between 1995 and 2015, falling below the average of 2.67 percent in non-resource-rich sub-Saharan African economies.
“Moreover, growth has been distributed unequally, with little impact on poverty,” part of the report, titled ‘From Falling Behind to Catching Up’, reads.
It further rates the situation as “particularly striking,” given that Malawi has been politically stable and free of conflicts and has suffered no more weather-related or other external shocks than other countries.
On fiscal management, the memorandum shows that Malawi’s recent economic history has been one of significant volatility in fiscal outturns and performance.
This has triggered knock-on effects, with fiscal indiscipline leading to large domestic borrowing requirements, crowding out private sector lending and stoking non-food inflation.
The fiscal dominance has also undermined the effectiveness of monetary policy, leaving Malawi with the costs of a tight monetary policy but without the benefits.
One of the authors, , Priscilla Kandoole, an economist working with the World Bank, said the burden of financing such persistent fiscal deficits has also led to a growing share of public expenditure going toward servicing domestic debt, compressing the available space for service delivery and public investment.
“We have had periods of high growth but these easily collapsed, so we have the high period of boom and burst. We need to have macroeconomic stability in order for people to be able to invest,” she said.
She further recommended the creation of an enabling environment for the private sector to thrive.
Kandoole also suggested a robust and resilient agriculture sector that would see an in productivity.
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