Published on Africa Can End Poverty

The Impact of the Financial Crisis on Malawi

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The impact of the financial crisis on Malawi has so far been limited. The financial sector is small and less sophisticated, with two (out of nine) commercial banks dominating the banking sector. Foreign direct and portfolio investment levels are very low. However, most commercial banks have reported difficulties accessing foreign credit lines. Furthermore, exchange rate movements in the west are having a negative impact on foreign aid inflows to Malawi. For example, DFID’s inflows (in Malawi Kwacha equivalent) have been reduced by about 25 percent due to a depreciation of the British Pound against the US Dollar.

In the medium to long term, the second round effects of the financial crisis could have a significant negative impact on Malawi through its impact on commodity exports and remittances. Malawi’s productive sector could be severely affected through reduced demand for the country's exports, mainly tobacco, sugar, and tea. These exports are particularly vulnerable because the EU and the US are the principal destinations. Further, Malawi receives significant amounts of remittances from abroad (around 4 percent of GDP). Therefore, a slowdown in the world’s economy is likely to have a significant negative impact on Malawi’s current account.


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