Africa > East Africa > Malawi > Malawi Outlook for 2012-16

Malawi: Malawi Outlook for 2012-16

2013/08/18

The country (Malawi) has borders with Mozambique for 1569 km, Tanzania for 475km and Zambia for 837km.
Land in Malawi is thin elongated plateau with rolling plains, rounded hills, some mountains.
It is situated in Southern Africa, east of Zambia.
The climate is sub-tropical; rainy season (November to May); dry season (May to November).
tonga 1.7%, other 3.6% (1998 census).

OVERVIEW

The president, Joyce Banda, and her People's Party are likely to remain in power until the elections in 2014. Popular discontent over rising prices will remain high and could intensify if the government fails to mitigate the effects and turn the economy around. Backing from the IMF and the liberalisation of the exchange-rate regime will improve investor sentiment and reduce the risk of further foreign-exchange shortages, although this will leave Ms Banda vulnerable to attacks from a additional populist opposition.

Real GDP increase is estimate to pick up to 4.3% in 2013 and 4.4% in 2014 as agricultural production recovers, aid inflows rise and economic stability improves. Average annual inflation will remain high in 2013, at near 25%, as the currency continues to depreciate, stoking imported inflation, before falling to 9.4% in 2014 owing to base effects and the stabilisation of the kwacha.

Political outlook

The government is dependent on smaller opposition parties and independents to pass legislation in parliament. Although the opposition is divided, it will be reluctant to back the government as the 2014 polls draw closer, and the lack of a majority and growing politicking will hinder effective policymaking. The arrests of several senior opposition members on treason charges could trigger a popular backlash, as the opposition will seek to depict them as an attack on democracy.

Economic policy outlook

The government is loath to increase tax pressures in the run-up to elections and this, together with lower than expected foreign grants and high spending pressure ahead of the polls, will cause the fiscal deficit to widen from an estimated 1.8% of GDP in 2012/13 to 3.4% in 2013/14.

Economic forecast

A recovery in tobacco exports and rising aid inflows will cause the current account deficit to decrease from an estimated 7.7% of GDP in 2012 to 7.4% of GDP in 2013.

Outlook for 2013-17

  • Political bickering will increase in the run-up to the 2014 polls, and this could undermine effective policymaking and weaken political stability. Even so, The Economist Intelligence Unit expects the government to see out its term.
  • The president, Joyce Banda, will continue with her ambitious reform pro‑gramme, which carries the prospect of improving macroeconomic stability, but could trigger unrest if the government fails to mitigate the effects of price rises.
  • The IMF\\\\\\'s support of the government\\\\\\'s reform programme will serve to improve the economic policy outlook. Nevertheless, evolution in diversifying the economy will be slow, and it will remain vulnerable to external shocks.
  • Real GDP increase is estimate to rise to 4.3% in 2013 as tobacco production recovers. In 2014-17 increase will quicken to an average of 5% as investment levels rise and economic stability improves.
  • Inflation is estimate to rise to 24.5% in 2013 as the kwacha continues to depreciate. From 2014 onwards it will moderate as commodity prices remain fairly stable, currency depreciation slows and domestic productivity rises.
  • As aid inflows rise and exports pick up gradually, the current-account deficit is expected to narrow from an estimated 7.7% of GDP in 2012 to 7.4% of GDP in 2013 and further, to 6.4% of GDP, in 2017.

Review

  • Eleven former senior government officials arrested for their alleged involvement in a 2012 coup plot have been granted bail. Nevertheless, the treason case has the potential to cause significant political disruption.
  • The opposition Democratic Progressive Party chose Peter Mutharika, one of the politicians arrested in the treason case, as its presidential candidate for the 2014 election. He will be the current president\\\\\\'s major challenger.
  • On May 24th the government presented its draft budget for 2013/14. It is loath to increase tax pressures in an election year; this, together with high spending pressure in the run-up to the polls, will cause the fiscal deficit to widen.
  • The economy grew by 1.8% in 2012, according to the government. Increase was hampered by weak tobacco output and turbulent politics. It is expected to pick up in 2013 on the back of improved policy and better agricultural output.
  • Uranium production fell slightly quarter on quarter in the initial three months of 2013 owing to heavy rains and poor equipment availability. However, average daily production reached record highs and we expect robust output in 2013.
  • Inflation edged down to 36.4% in March, the initial year-on-year fall in nearly two years. The rate remains high but the turnaround trend was welcomed by the government, which has grappled with growing public discontent.
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