Malawi is one of the world’s poorest countries, ranked 153 out of 169 countries on the United Nations Human Development Index of 2010, with an estimated GNP per capita of US$354. Achievement of the MDGs are uneven, with five of the eight MDGs likely to be met, including those related to eradicating extreme poverty, reducing child mortality, combating HIV/AIDS, malaria and other diseases, and ensuring environmental sustainability. The proportion of people living below the poverty line is estimated to have decreased from 50 percent in 2004 to 39 percent in 2009. HIV/AIDS adult prevalence rates dropped from 14.4 percent in 2004 to 12 percent in 2007.
Life expectancy, which had declined from 46 years in 1987 to 37 years in 2005, has now increased to 54.6 years (2010 UN Human Development Report). However, the MDGs that are unlikely to be met include achieving universal primary education, gender equality, and reducing maternal mortality.
Malawi has experienced solid growth during the period 2006-2010, averaging at around seven percent in real terms, largely on account of prudent macroeconomic policies and supportive donor environment. The success of 2006-2010 was built on strong stabilization policy since 2004 and the debt relief from the Heavily Indebted Poor Countries (HIPC) initiative, which helped improve public expenditure management, and created the fiscal space needed to generate the momentum to resume growth.
This growth was supported by several bumper tobacco harvests, good weather, and availability of fertilizer and seeds through the Government’s farm input subsidy program. Malawi continues to face numerous constraints and risks. These include supply-side constraints (such as persistent energy shortages) and the availability of foreign exchange, and vulnerability to terms of trade, weather and other exogenous shocks. The deepening of these challenges over the past year presents the risk of rolling back positive strides on social and economic outcomes even in the context of achieving MDG targets.
Since mid-2010, the country’s macroeconomic performance has weakened considerably and the IMF’s Extended Credit Facility remains off-track. The macro performance has been adversely affected by the juxtapositioning of significantly reduced tobacco export proceeds and backlog of critical imports, combined with higher fuel and fertilizer prices and other-supply-side constraints, which have contributed to a widening of balance of payments and budget gaps. In addition, the turn of the year 2011 has seen the suspension of budget support by CABS Development Partners on account of poor economic and political governance concerns on the part of Government.
The economy has started to slowdown as businesses are being scaled down due to forex shortages, fuel and persistent power outage. With the dried up letters of credit and severe forex shortages, supply of critical imports such as fuel, fertilizer and drugs is highly constrained and inflationary pressures have emerged as evidenced in the rising cost of living for citizens and the cost of doing business for enterprises. In view of this, real GDP projections for 2011 have been revised downwards from 6.9% to 6%, but still remains on the optimistic side considering the current economic challenges.
While inflation remains moderate at the mid-upper single digits, the inflationary pressures reflect the impact of the kwacha devaluation of 10 percent in August 2011, fuel supply, forex shortages, new tax measures, and energy problems, among others.
Agriculture accounts for over 80 percent of employment, over one-third of GDP, and about 80 percent of merchandise exports. Over 70 percent of all farmers cultivate less than one hectare and a significant number struggle to produce enough food to meet their consumption requirements.
Between 1967 and 2003 the country experienced six major droughts that had a cumulative impact on 21 million people. The impact of drought is felt mainly by smallholder farmers. Eighteen floods occurred between 1967 and 2003 affecting 1.8 million people, resulting in loss of life, infrastructure destruction (including roads, rail and homes), crop loss, food insecurity, and health impacts (diarrhea, cholera and malaria).
Only four percent of the population has access to electricity: thirty percent of urban households and less than one percent of rural households. Ninety-eig ht percent of current electricity generation is from run-of-river hydropower plants on the Shire River. Installed hydropower capacity is 285 MW, less than demand, and unable to meet peak demand owing to frequent equipment breakdown and environmental factors such as sedimentation and increasing aquatic weed growth. The planned expansion of generation capacity within the middle Shire cascade would further increase dependence on the Shire River for power generation.
The adverse economic, social and environmental impacts of these challenges are acute in the Shire River Basin. Given the economic and social importance of the Basin for national growth and development, it is critical to address the root causes of the deteriorating environment and natural resources base in the basin to ensure sustainable growth and poverty reduction.
- Project context to Malawi: Shire River Basin management programme, PROJECT INFORMATION DOCUMENT (PID), APPRAISAL STAGE, World Bank, February 2012. The six page document can be accessed here.
