8 February 2002

Malawi: Report By the Government - Part I


Geneva — Malawi is a landlocked, highly indebted, least developed country situated in Central Africa, surrounded by Mozambique in the southeast, Tanzania in the northeast and Zambia in the west. Malawi comprises of an area of almost 118 500 square kilometres out of which about 24,420 square kilometres is covered by Lake Malawi. According to a 1998 population census, the country has an estimated population of about 10 million with about 75 per cent living in the rural areas. It has a GDP per capita of US$200 (1999). 65.3 per cent of the population lives below the poverty line and has severe health problems. The HIV/AIDS pandemic is arguably the biggest challenge to Malawi's development plans.

The country became independent in 1964 from the British rule. For much of the 30 years, Malawi was under a one-party rule. In early nineties, multiparty democracy was introduced and the elections of 1994 ushered in the current government of the United Democratic Front (UDF).

In the first fifteen years after independence in 1964, Malawi's Gross Domestic Product (GDP) grew at an average annual rate of nearly 6 per cent. But the fruits of this growth were poorly distributed, and growth itself was based on estate-owned agriculture and large public and private conglomerates protected by pervasive barriers to entry. Since then government has been working towards attaining similar growth rates and improved distribution of this growth.

Malawi's economy remains very fragile with a narrow base, lacking in key social services and infrastructure. The size of its market and its landlockedness pose a particular challenge to meeting the needs of the private sector for high quality infrastructure at the lowest possible cost. It is an economy that is vulnerable to various shocks, making it challenging for the country to attain a sustainable economic growth.

Agriculture is the primary economic activity of the country and it contributes nearly 36 to 39 per cent to Gross Domestic Product and over 90 per cent of export earnings. It employs about 80 per cent of the labour force. This dependence on agricultural commodities also makes the country vulnerable to the frequent fluctuations in world commodity prices. The country's staple crop is maize, while tobacco is, by far, Malawi's largest export crop, followed by tea, sugar, coffee and cotton. Tobacco exports mainly go to the USA and the European Union. Its heavy dependence on tobacco and the growing anti-smoking lobby in the U.S., EU and elsewhere in the world pose an additional risk and uncertainty to the sustenance of the economy.

The economic performance of Malawi has remained quite unsatisfactory in the past five years. Relative stability and growth have been experienced but only to limited extent. The major reasons for this are numerous. They include high levels of inflation, fiscal imbalances, external shocks, depreciation of the Kwacha, high interest rates and poor tobacco prices offered at the auction floors.

In facing this challenge, Malawi has been undertaking a number of policy reforms: Among others, these include the 'Cash budget system' preventing Government Ministries from spending more than they were allocated in the national budget as one way of controlling expenditures to reduce budget deficit; the privatisation programme and establishing a sound institutional mechanism to manage the programme; introducing the Medium Term Expenditure Framework; and the preparation of the Poverty Reduction Strategy Paper (PRSP) to facilitate the attainment of the appropriate conditions for the poor to gain and improve their social welfare status; and trade liberalisation programme to encourage diversification of both imports and exports.

Malawi has, since the early 1980, implemented the IMF and World Bank-supported Structural Adjustment Programmes (SAPs). The major thrust of these programmes has been the liberalisation of the economy to create an enabling environment for both domestic and foreign investments. In recent budgets, for example, maximum tariffs have successively been reduced to the current level of 25 per cent. Duties on capital goods have been brought down to 0 per cent. However, this liberalisation process has failed to bring about a marked change in either the share of GDP or in the structure of Malawi's trade.

Malawi's economic development prospects will depend on its ability to adjust. In this regard, there will be need for increased support or assistance from the international community so as to meet adjustment costs, including providing unrestricted market access to products of export interest to Malawi. The country has, through a widely consultative process, developed a national Vision which provides that 'by the year 2020, Malawi, as a God-fearing nation, will be secure, democratically mature, environmentally sustainable, self reliant with equal opportunities for and active participation by all, having social services, vibrant cultural and religious values and a technologically driven middle-income economy.' The challenge is to consolidate the Vision and other policy initiatives into a development framework with clear strategies and priorities for short

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