Almost two years ago I was given the opportunity to move to Malawi as the World Bank’s senior country economist. It was a chance that I jumped at, having previously worked in Lilongwe for three years in the Malawi Government before joining the Bank. I was keen, along with my family, to reconnect with old friends and colleagues and return to “the warm heart of Africa” and a place with so many happy memories.
Sadly, Malawi has experienced tough times during these two years. Severe flooding, followed by drought last year, and then another drought this year have left about a third of Malawians without enough food to last until next year’s harvest. The drought, which has now been declared a national disaster by the president, has also had far-reaching effects setting back economic growth and job creation, pushing up prices and threatening to reverse Malawi’s hard won development gains in areas such as school attendance and nutrition. In response to last year’s weather shocks, the World Bank and other development partners worked hard to support Government’s efforts to respond. A similar effort is underway this year too.
However, the big question on everybody’s minds is “how can Malawi break the cycle of vulnerability?” Nobody expects this year’s disaster to be the last weather-related shock that affects the country. So what can be done to build a more resilient economy and society that is better able to absorb the impact of shocks, and better able to manage a changing and more variable climate?
The new edition of the Malawi Economic Monitor, published this week and titled “ Absorbing Shocks, Building Resilience” looks at just these questions. Were it not for a second year of drought conditions, Malawi would be starting to see signs of an economic recovery following improved macroeconomic management and stronger control over public spending. A key challenge for the Government over the next year will be to protect these gains, while also managing a coordinated food security response. We see the following areas as key priorities to ensure that Malawi is able to absorb the impact of current drought, and build up resilience against future shocks:
- Keep going with efforts to exercise tight control over public expenditure: this will involve careful control of expenditure commitments and strict enforcement of budget ceilings across Government to avoid any overruns and manage borrowing.
- Continue with a tight monetary stance and the maintenance of positive real interest rates: interest rates have a direct effect on private sector investment and job creation, but will only begin to fall once the underlying causes of high non-food and food price inflation are addressed.
- Reform to open up fiscal space for resilience-building development investments: the drought is motivating tough choices to reform subsidy schemes (such as for fertilizer) and create opportunities to free up public resources for alternative, more productive uses. Creating such fiscal space is necessary to enable Malawi to invest in building the foundations for stronger medium-term growth.
- Increase the uptake of on-farm risk management practices: this includes access to new technologies, better extension services, crop diversification and stronger market linkages.
- Reduce price distortions and volatility: measures to promote freer trade through the establishment of predictable and transparent policies will promote production and exports by enabling fair prices at all levels of the supply chain. Ensuring that farmers have access to markets that enable them to generate profits from their outputs is crucial to the sustainable uptake of improved risk management practices. This will also require more transparency and better coordination among public sector agencies that intervene in Malawi’s food markets.
Our hope is that after a period of tough times, Malawi can emerge stronger. A frequently heard comment is that the country has enormous potential, not least from its youthful population and abundant resources, but the persistent challenge is overcoming the short-term hurdles that keep that potential elusive. With the right policies, Malawi has every change to break the cycle and fulfil its potential.
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