| Description | Malawi Economic Brief |
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| ISBN | (Web Only) |
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| Official Print Publication Date | |
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| Website Publication Date | June 09, 2005 |
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Prepared by:
Analytical Services Division
Finance and Central Services Department
Scottish Executive
Malawi: Key Development Facts
- Malawi is one of the ten poorest
countries in the world with an income per
person of around $160 per year: 170 times
less than the average Scot's income.
- Although Malawi's population (c.12m) is
more than twice the size of Scotland's, and
its land area is around 50% larger, its
economy is only a little over 1% of the
size of Scotland's ($1.8bn vs. $139bn in
2003). Falkirk's economy alone is around
twice the size of Malawi's.
- Malawi suffers from one of the worst
HIV/
AIDS epidemics in the
world with around one million people
infected - more than the total number in
Europe and North America combined - and
around half a million orphans: roughly the
same number as the entire population of
Edinburgh.
- Life expectancy at birth has fallen
from around 45 years in 1990 to around 37
years today: around half of the life
expectancy of the average Scot.
- Malawi's government can only afford to
spend on average $12 (around £6) per person
each year on healthcare. (Source: Statement
by Health Minister Ntaba, Feb 05).
- Children under the age of five are 27
times more likely to die than those in
Scotland.
- Malawi is the country with the fewest
doctors per person (Source: Guinness World
Records).
USAid cite this ratio
at: 117,647:1 for 2002: one doctor serving
a population equivalent to that of Ayr and
Livingston combined.
- Malawi's population is growing rapidly:
more than half the population is less than
15 years old.
- In Malawi there is one qualified
teacher for every 95 pupils, compared to
one for every 14.9 pupils in Scotland
(Source: National Statistics On Line
2002/03).
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Malawi Economic
Brief
Geography: Malawi is a relatively small,
landlocked country in southern Africa at the southern end
of the East African Rift Valley. It shares borders with
Mozambique, Tanzania and Zambia and occupies an area of
118,480 Km
2 - around 50% larger than Scotland - although a
fifth of this is accounted for by Lake Nyasa. The climate
is sub-tropical, with a rainy season lasting from November
to May and a dry season from May to November.
Population: The population, projected to
reach 12.9m in 2005 (
UN Population Division), is fast growing
and young: nearly half the population is under 15 years of
age, less than 3% over 65 years. Rapid population growth is
creating land pressures in a country that is critically
dependent on agriculture. The populationis predominantly
Christian (55% Protestant; 20% Catholic) but Islam
represents a sizeable minority accounting for 20%. The
official languages are English and Chichewa.
History: The Republic of Malawi, formerly
known as Nyasaland, gained independence from the
UK in 1964, after 73 years of British
rule. The Prime Minister at the time, Hastings Kamuzu
Banda, was elected President for life in 1971 and
established authoritarian, one-party rule. His reign ended
in 1994, when he was defeated by Mr Bakili Muluzi and his
United Democratic Front (
UDF) in the country's first multiparty
elections. Muluzi and his
UDF party were re-elected in June 1999
but presided over a period of poor economic performance,
including a severe drought in 2002.
Politics: The current President Bingu wa
Mutharika was elected in May 2004, after President Muluzi
failed to amend the constitution to enable him to stand for
a third term in office. The President is head of government
and state and presides over a 46-member cabinet. The
legislature is unicameral, with the 193 members elected for
five-year terms. Various political parties comprise both
the ruling coalition government and the opposition.
Parliament has not met since summer 2004 and it is not
clear when it will reconvene.
Poverty: In actual prices, Malawi's
GDP was only $1.8bn in 2003 - little
more than one per cent of that of Scotland, notwithstanding
that its population is more than twice as large as
Scotland's. Around 60% of the population live below the
poverty line. The average income is only $160 per year: the
average Scot's income is over 170 times greater. The
situation appears slightly better if purchasing-power
parities (
PPP) figures are used, which take the
cheaper cost of living in Malawi into account when
comparing national income levels. On
PPP terms,
GDP is over $7bn and income per capita
around $600 per year. However, on either measure, Malawi
remains desperately poor, one of the ten poorest countries
in the world, despite the efforts of government and civil
society. Malawi is classified a heavily indebted poor
country (
HIPC), rendering it eligible for
conditional debt relief [See Box 1]
.
Why is Malawi so poor? Malawi's poverty is
a result of a variety of factors: under-developed
institutions; poor physical infrastructure - such as
transport links - reflecting low savings and investment;
corruption
1; low human capital investment - reflecting limited
educational provision; undiversified exports; difficult
climatic conditions; an adverse geographical position -
restricting access to international markets; and relatively
few natural resources. Recent work carried out for
DFID also highlighted the significance
of population density for Malawi's poor economic
performance. Compared to other countries in the region,
each household has a relatively small plot of land to grow
food and hence they are unable to use techniques such as
crop rotation. Over time this has reduced the quality of
the soil and the size of the harvest. In recent years,
Malawi's poverty has been exacerbated by real income losses
resulting from adverse terms of trade as the prices of its
exports (
e.g. tobacco) have fallen, while prices for
key imports (
e.g. oil) have risen. As a result of all of
these factors -often reinforcing one another, Malawi's
economic growth has remained erratic and well below the 6%
annual growth rate that the World Bank estimates is
necessary to make serious inroads into poverty
reduction.
Box 1: Heavily Indebted Poor
Country (
HIPC)
Initiative In 1999 the Heavily Indebted Poor Countries'
(
HIPC) Initiative was
launched by the World Bank and the
International Monetary Fund (
IMF), to provide debt relief
to poor countries committed to eradicating
poverty. By October 2004, 27
HIPC countries had qualified
with 15 at Completion Point and the other 12 at
an Interim Point. Malawi has foreign debt of $2.9 billion, of
which $1603 million is owed to the World Bank,
$322 million to the African Development Bank,
and $88 million to the
IMF. In 2000, under the
enhanced
HIPC Initiative, the World
Bank and the
IMF agreed to support a
debt-reduction package for Malawi. Total
HIPC assistance was
estimated at $1 billion in nominal terms. Due to the poor fiscal management of the
previous government, Completion Point has not
yet been achieved, delaying full debt relief.
Despite these interruptions in the
HIPC Initiative, some relief
has been issued. Since December 2000 Malawi has
received interim debt relief on its foreign
debt and hence benefited from lower interest
payments on foreign debt. In terms of Malawi's
bilateral debt to the
UK Government, £4m has
already been written off; only £300,000 remains
outstanding. Since the election of the new president in
2004, the government has shown itself to be
committed to improving macro-economic
management (containing spending; borrowing and
keeping inflation down) and on the basis of an
encouraging three-months track record, it is
hoped that Malawi will soon reach Completion
Point at which time its debt should be reduced
to sustainable levels. |
Human Development Index: On wider
development indicators, Malawi also performs very poorly,
ranked 165 out of 177 countries according to the
UN's human development index (2004) - a
composite measure which takes health, longevity, education
and standard of living into account. Life expectancy has
fallen dramatically over the past decade with the onset of
HIV/
AIDS (see Box 2): from 45 years in 1990
to around 37 years currently. The epidemic has also
resulted in a massive increase in the number of orphans: to
around half a million currently, similar to the entire
population of Edinburgh. Furthermore, the World Bank
estimates that, with more than one million infected, Malawi
has more people living with
HIV/
AIDS than the whole of North America and
Western Europe combined. According to the World Bank's
latest country assistance strategy, Malawi is unlike to
reach any of the Millennium Development Goals by 2015 with
the exception of primary school enrolment (although note
that enrolment is not the same as attendance: the last
World Bank country assistance strategy reported that only
one in three children complete five years in
education).
Box 2:
HIV/
AIDS
In the fight against poverty nothing can be
more essential than combating Malawi's
increasingly vicious
HIV/
AIDS epidemic. According to
the Malawian Health Minister, the country is
losing about 10 people to
AIDS every hour; 240 people
every day. In a recent report by the Malawian
health ministry, annual spending per capita on
health must increase from $12 currently to at
least $36 if
HIV/
AIDS infections are to be
reduced. The report also identified that about
90% of Malawi's physicians' posts and 35% of
nursing jobs are vacant due to death and the
so-called "brain drain" to better paid jobs
overseas. Estimated number of adults and children
living with
HIV/
AIDS, end of 2003 Adult (15-49)
HIV prevalence
rate | 14.2% |
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Adults and children living with
HIV | 900 000 |
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Adults (15-49) living with
HIV | 810 000 |
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Children (0-15) living with
HIV | 83 000 |
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Woman (15-49) living with
HIV | 460 000 |
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AIDS deaths
(adults and children) | 84 000 |
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Current living
AIDS orphans
(<17) | 500 000 |
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Source: 2004 report on the global
AIDS epidemic,
UNAIDS. Since Mutharika's government came into power
Malawi has seen an improvement in its response
to the
HIV/
AIDS epidemic. Not only has
the government increased its efforts to combat
the epidemic, but in doing so, improved donor
confidence, leading to an increase in much
needed financial support. However much remains
to be done. Although the increase in the number
of anti-retroviral recipients to 9,500 in 2004
is impressive, it is a small number in
comparison with the total number of those who
benefit from treatment. |
Inequality: Even the minimal average
income figures mask the plight of Malawi's poorest as
society is highly unequal, by income and by gender,
affecting access to land, education and other assets. The
Gini coefficient - which measures income inequality - is
particularly high (0.62) - meaning that Malawi suffers from
one of the worst income disparities in the world. Gender
inequality is reflected in the disproportionate work burden
that falls on girls and women, who undertake most of the
home and farm work.
Agriculture: Malawi's economy is
critically dependent on agriculture, which accounts for
over 90% of exports and 40% of
GDP. 85% of the population live in rural
areas and of that the majority are subsistence farmers.
Industrial development is limited. Tobacco is the principal
export (accounting for around 60% of export earnings),
making Malawi vulnerable to weak tobacco prices. Tea,
sugar, coffee and cotton are also important. Maize - the
staple diet and domestic crop - is largely produced by
small, quasi-subsistence peasant holdings which occupy much
of the farmland. Maize production has been inadequate in
recent years creating the need for maize imports. Food
security does not exist, even during good harvests. In
addition to pressures from rapid population growth,
agricultural development has been hampered by recurring
droughts, poor resource management and environmental
degradation (deforestation, land degradation, water
pollution etc).
Trade: Given its small size and
undiversified economy, Malawi is necessarily dependent on
trade. Trade (imports plus exports) accounts for around 60%
of
GDP. The trading regime is relatively
liberal. South Africa and
EU are the main trading partners for
imports (approx 30% each). Key export markets are the
EU (35%) and
US (15%). Major imports include fuel,
capital and consumer goods and - disappointingly for an
agricultural economy - food. Excessive dependence on
imports in conjunction with weak export performance has
resulted in huge current-account deficits in the order of
10% - 25% of
GDP (before donor financing).
Aid: Given Malawi's inability to borrow on
external capital markets it is heavily dependent on aid -
on both international financial institutions and bilateral
donors (of which the
UK is the largest). Donors collectively
finance around 50% of government expenditure.
Economic Policy: Malawi has a history of
poor economic management, which has resulted in runaway
inflation (
e.g. 30% p.a. in Feb 2001), weak growth,
spiralling fiscal deficits and volatile exchange rates. The
relationship with the
IMF has been difficult - leading to
withdrawals of some donor funding - but has improved
significantly with the new President and Government. [See
Box 3] The new government has adhered to its budget, and
the fiscal deficit could end up at a reasonable 4% for this
financial year. They have also reinvigorated the stalled
privatisation programme with the impending sale of Malawi
Telecoms. With sound progress recorded under the current
(unfunded)
IMF Staff Monitored Programme (
SMP) and the likelihood of parliamentary
approval for the fiscally responsible 2005/06 budget
(expected in June), a new funded
IMF programme is likely to be in place
by mid 2005, which will open the way for Malawi to reach
its completion point under the
HIPC initiative and benefit from further
debt relief.
Box 3:
IMF Poverty Reduction
and Growth Facility (
PRGF) In September 1999, the
IMF established the Poverty
Reduction and Growth Facility (
PRGF) to make the objectives
of poverty reduction and growth more central to
lending operation in its poorest member
countries.
PRGF-supported programs are
framed around comprehensive, country-owned
Poverty Reduction Strategy Papers (
PRSPs), which are prepared
by governments with the active participation of
civil society and other development partners.
This is intended to ensure that
PRGF-supported programs are
consistent with comprehensive framework for
macroeconomic, structural, and social policies
to foster growth and reduce poverty. In December 2000, a three-year
PRGF arrangement for Malawi
was approved. However within a year (in
November 2001) Malawi was off track with a poor
performance in poverty-related expenditures and
a fiscal gap significantly below target.
By Autumn 2003, there were some improvements in
fiscal management. The
IMF completed its first
review of Malawi's
PRGF arrangement and
approved a disbursement of
US$ 9.2 million. However by
Spring 2004 the
PRGF programme was again off
track. Following the election of the new Government
in May 2004 the
IMF prepared a Staff
Monitored Programme and so far the performance
of the new government has been good; for the
past nine months expenditure targets have been
met. Encouraged by improved expenditure
management and the clampdown on corruption, the
IMF is currently in
discussion with the new President Mutharika
over a new
PRGF with would open the way
to Malawi reaching its
HIPC Completion Point and
receiving additional debt relief. |
Monetary Policy: The currency, the Kwacha,
has suffered from a volatile exchange rate. The central
bank has attempted to intervene to stabilise the currency
but is contrained by very low foreign-exchange reserves
(less than two months of import cover). Interest rates
remain very high. Base rates have been over 40% in recent
years, but were reduced to 25% in June 2004, and remain at
this rate. High real interest rates reflect the governments
heavy domestic borrowing and also the under-developed and
non-competitive banking sector. Such high rates have
hampered private investment - a key driver of growth - in
addition to exacerbating the fiscal position. Inflation in
2005 is anticipated at 15%, fuelled by high import prices (
e.g. for oil and for maize - the staple food).
Monetary policy is expected to remain tight in order to
help bring inflation back down under control.
Box 4: World Bank: County
Assistance Strategy (
CAS) In May 2003 the Malawi
CAS was approved by the
Bank's board. Based on the current social,
economic and political situation in Malawi, the
strategy presents a program aimed at helping
the Government address urgent development
issues. The program is organised under three
pillars: (i) Strengthening economic management (ii) Establishing a platform for growth (iii) Improving service delivery and
strengthening the safety net All objectives organised under the three
pillars of the
CAS will be achieved through
on-going projects funded by the bank. Currently
there are twelve active projects in Malawi with
a net commitment of
US $381.6 million, and an
un-disbursed balance of
US $262 million (as of
August, 2004). Projects include: - Multi-sectoral
AIDS Project which
supports efforts by the government to
reduce
HIV transmission and
mitigate the impact of the disease
throughout Malawian society.
- Malawi Social Action Fund (
MASAF), a
poverty-reduction project that supports
decentralisation and community capacity
building.
- Road Maintenance Project aimed at
bringing sustainable improvements in the
quality of Malawi's road
infrastructure.
- Privatisation and Utility Reform
Project, aimed at improving the
quality and access to economic and physical
infrastructure, namely telecoms, water, and
power stations.
- Financial Management and Accelerating
Growth Project (
FIMAG), which
provides credit for structural adjustment.
In 2004 the Project was approved committing
US $50m in balance of
payments support over a period of 2
years.
|
International Relations(inter alia): Member of
COMESA (Common Market for East and
Southern Africa) and
SADC (Southern African Development
Community) and the
WTO.
President: Bingu wa Mutharika
Vice President: Cassim Chilumpha
Finance Minister: Goodall Gondwe
Central Bank Governor: Victor Mbewe
20 May 2005
FCSD/Analytical Services Division
Scottish Executive
Footnote1 Malawi ranks 87 out of 145 countries for the extent of
corruption (as measured by Transparency International's
Corruption Perception Index 2004) alongside India and
Russia.