世界发展银行-Malawi-Economic-Monitor,-December-2020---Doing-More-with-Less---Improving-Service-Delivery-in-Energy-and-Water_53页_3mb

Malawi Economic Monitor Summary - December 2020

Overview

Malawi's economy faced significant challenges in 2020 due to the impact of the COVID-19 pandemic, which led to a sharp recession and a projected GDP growth of 1.0%, down from earlier estimates of 4.8%. This contraction was exacerbated by social distancing measures, disruptions in global value chains, declines in tourism and remittances, and reduced domestic demand. Despite this, favorable weather conditions supported a strong agricultural harvest, particularly for maize, which helped stabilize food security and support real GDP growth.

The pandemic also stagnated poverty reduction, with an estimated 12% of the economically active population losing jobs. Malawi's poverty rate based on the US$1.90 threshold has only declined by 3 percentage points since 2004, lagging behind the 11 percentage point drop seen in Sub-Saharan Africa. The current account deficit is expected to widen to 19.6% of GDP, driven by declines in key exports like tobacco and lower international oil prices.

Headline inflation decelerated to 7.5% in October 2020, but seasonal pressure on maize prices is expected to increase food inflation to 10.9%. Non-food inflation has remained stable at 4.4% since July 2020.

The fiscal deficit in FY2019/20 expanded to 9.4% of GDP, far exceeding the mid-year revised target of 5.2%. This was due to revenue shortfalls, higher expenditures from elections, arrears repayments, and pandemic response. The FY2020/21 budget is expansionary, with a projected fiscal deficit of 12.4% of GDP, driven by expanding input subsidies and increased interest payments.

Malawi is at high risk of overall debt distress and moderate risk of external debt distress, with limited fiscal space to absorb shocks. Public debt is expected to rise to 64.6% of GDP, largely due to domestic debt and high primary deficits.

Key Challenges and Opportunities

1.1 Global and Regional Context

• The global economy experienced a sharp recession in 2020, with advanced economies projected to shrink by 5.8% and emerging and developing economies by 3.3%.
• Sub-Saharan Africa faced its first recession in 25 years, with Malawi being significantly impacted.
• International oil prices have partially recovered, helping to reduce the import bill and alleviate fuel and transportation costs.

1.2 Recent Developments

• Services and industry sectors were heavily impacted, leading to declines in wholesale and retail trade, manufacturing, and construction.
• Agriculture remained a key growth driver, with a strong harvest supporting real GDP growth.
• Poverty reduction has stagnated for over 15 years, and is expected to worsen due to the pandemic.
• Fiscal challenges are intensifying, with high domestic debt and increased interest costs.
• Monetary policy has lowered the policy rate to support economic recovery.
• The banking sector has remained resilient, despite the pandemic.

1.3 Macroeconomic Outlook and Risks

• Economic growth is projected to rebound to 3.3% in 2021, but higher growth is needed for poverty reduction.
• The recovery depends on pandemic containment, vaccine rollout, and economic resilience.
• The Affordable Inputs Program (AIP) is expected to boost agricultural output and household incomes, but at the cost of promoting diversification.
• Fiscal consolidation will be necessary in the medium term to reduce domestic debt to sustainable levels.

Special Topic: Doing More with Less - Improving Service Delivery in Energy and Water

2.1 Status of Electricity and Water Service Delivery

• Malawi has one of the lowest electrification rates in the world (11%), and water access is only 67%.
• Poor service quality and unreliable infrastructure have negative impacts on growth, health, and poverty reduction.
• Inefficient SOEs and limited fiscal space are major barriers to investment and service delivery.

2.2 Constraints to Better Service Delivery

• Limited fiscal space has hindered infrastructure investment.
• Inefficient SOEs have limited borrowing capacity, hampering service delivery.
• Weak SOE governance has exacerbated operational challenges and discouraged private investment.
• Need for private sector involvement to mobilize finance and improve efficiency.

2.3 Policies to Maximize Investment and Improve Service Delivery

1. Upgrade the PIM framework and integrate it with the PPP program:

   • Improve project prioritization and selection.
   • Enhance project design and implementation.
   • Strengthen procurement efficiency and compliance.
   • Integrate PPP into the PIM process to leverage private sector efficiency.
   • Establish a Project Preparation Facility (PPF) to support project development.

2. Ensure SOEs are more efficient and creditworthy:

   • Improve financial performance through stronger HR and management capacity.
   • Implement performance-based financing.
   • Enhance governance, board independence, and accountability.
   • Ensure regular tariff adjustments linked to performance and inflation.
   • Promote responsible borrowing and market-based finance.

Conclusion

The Malawi Economic Monitor highlights the challenges and opportunities for economic recovery and service delivery in energy and water. The new administration must balance short-term emergency measures with long-term reforms to build resilience and improve service quality. Key actions include strengthening fiscal sustainability, improving SOE governance, and leveraging private sector participation through PPP programs. These steps are critical to achieving inclusive and sustainable growth in the face of ongoing economic and health challenges.