New Malawi Economic Update Calls for Urgent Action to Address Macroeconomic Imbalances and Increase Energy Access

Malawi’s path towards achieving the goals of its long-term development vision, Malawi 2063, remains feasible but narrow, according to the latest World Bank Malawi Economic Monitor (MEM). This is because a prolonged macro-fiscal crisis, exacerbated by extreme weather events, a slow debt restructuring process, and delayed governance reforms have subdued economic growth. The new MEM says improvements in political commitment and investment, and reforms in the energy sector could help growth by pushing access to electricity above 50% by 2030.

The MEM provides a bi-annual analysis of Malawi’s economic and structural development issues, and in this 17th edition, Powering Malawi’s Growth: Rapidly and Sustainably Increasing Energy Access shows that the economy has had a difficult start in 2023. Economic growth is expected to increase only slightly, reaching 1.4% in 2023, its trajectory driven by longstanding macroeconomic imbalances, an ongoing debt and balance-of-payments crisis, and the impacts of Tropical Cyclone Freddy, with the energy crisis only partially offset by the resumption of electricity generation at the Kapichira hydropower plant.

Cyclone Freddy is estimated to have caused production losses equivalent to $36.4 million, which translates to a real GDP loss of 0.5% for 2023. World Bank analysis has shown that without significant investments in climate adaptation, the impacts of climate change will lead to GDP losses of 3% to 9% in Malawi by the end of this decade.

“Malawi’s economy is weakened by foreign exchange shortages that constrain the import of essential commodities and inputs, and that lower agricultural output, as well as by erratic electricity supply and the increasing frequency of natural disasters. Its ‘polycrisis’ needs urgent movement on reforms that promote macroeconomic policy and governance, as well as a wide range of policy responses in energy, agriculture, climate adaptation, and resilience to create a stronger foundation for economic growth,” says Hugh Riddell, World Bank Country Manager for Malawi.

The MEM recognizes that Malawi has the strong strategic and policy framework needed to increase energy access. Moving the country to 50% electricity access and beyond by 2030, as outlined in Malawi 2063 Vision, requires impactful reforms, political commitment, and financial resources. Based on previous lessons, rapidly scaling up electricity access makes it crucial to enhance institutional capacity for grid expansion and off-grid investments, improve governance for operational and financial efficiency, and to adopt adaptive approaches that fine-tune their implementation.

“Empowering every Malawian with access to reliable and affordable energy is not just a vision, it is a commitment we hold steadfastly. Through our energy access program in Malawi, we will continue to support the government to take bold steps to reform the energy sector so it can sustainably drive universal access and economic growth,” says Wendy Hughes, World Bank Infrastructure Director for East and Southern Africa.

This MEM’s special section on energy shows that in 2022, Malawi ranked fourth lowest in energy access in Africa, just ahead of South Sudan, Chad, and Burundi. In 2023, its electricity access rate is estimated at 19% (45% in cities and 5% in rural areas), showing that access rose from 11% in 2018 with the expansion of the private sector-led, off-grid solar home system, while the percentage of access linked to the national grid has remained stagnant at about 12%.

The current uncertainty surrounding its economic prospects means that getting Malawi back on track to meet the 2063 development goals will require major reforms to support increased macro-stability, growth, and resilience. The MEM calls for restoring macroeconomic stability through increased budget discipline and credibility, as well as for continuing progression towards a market-based exchange rate and containing domestic borrowing. In addition, growth requires boosting the private sector’s ability to export, increasing access to reliable power, strengthening agricultural diversification and commercialization, and ensuring the financial sector is better able to support productive firms.

Distributed by APO Group on behalf of The World Bank Group.