## IMF Survey : Malawi: Tackling Inflation Key to Sustainable Growth

_IMF News, January 6, 2016_

## Source details

**Canonical URL:** [IMF Survey : Malawi: Tackling Inflation Key to Sustainable Growth](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar010616a)

## Other formats

- [Markdown version](/en/news/articles/2015/09/28/04/53/socar010616a/index.md)
- [Structured JSON version](/en/news/articles/2015/09/28/04/53/socar010616a/index.json)
- [Bundle manifest](/en/news/articles/2015/09/28/04/53/socar010616a/bundle-manifest.json)

## Bibliographic details
- Published: January 6, 2016

---

### Economic health check — key findings
- Reducing inflation is the most important policy issue for Malawi in the near term.
- Currency depreciation and uncertainty about the future direction of policies have kept inflation above 20 percent on average.
- The economy remains heavily dependent on aid flows and is still feeling the effects of the large-scale theft of public funds uncovered in 2013 (the “cashgate” scandal).
- Donors suspended all budget support after “cashgate,” forcing the government to print money to cover the deficit.
- A poor maize harvest caused by heavy floods and drought in early 2015 raised food prices and pushed inflation up further.
- If left unaddressed, inflation “will become entrenched, continue to hurt investment and growth, and worsen living conditions, especially for the poor.”

### Economic performance and structural context
- Real GDP growth averaged only 4 percent during 2012–15 and was significantly below the 7 percent targeted under Malawi’s Growth and Development Strategy.
- Malawi is heavily dependent on a narrow commodity export base dominated by tobacco, increasing vulnerability to large shocks.
- Progress in the social sector includes achieving gender parity in primary school enrollment, improving access to water, and further lowering infant mortality, which has been below the average for sub-Saharan Africa since 2004.
- Financial sector depth and inclusion increased steadily through 2012 but have since stagnated due to persistently high inflation and structural obstacles.

### Financial sector and fiscal interactions
- Inadequate fiscal adjustment following “cashgate” affected the financial sector through several channels:
  - Non-performing loans increased due to accumulation of domestic payment arrears to private suppliers who experienced difficulties in servicing loans.
  - Credit risk emerged as the most significant threat to the banking sector.
  - Financing the deficit through increased recourse to domestic financing crowded out bank lending to the private sector.
  - Stubbornly high inflation contributed to higher interest rates and greater exchange rate volatility, increasing the cost of servicing domestic debt.
- Structural obstacles identified include limited access to credit, unreliable electricity supply, and high transportation costs.
- Half of the people living in the rural areas do not have access to financial services, as these services are mainly available in urban areas.

### Policy analysis and recommendations
- The report emphasized the importance of restoring macroeconomic stability in the near term through the pursuit of tighter fiscal and monetary policies geared toward placing inflation on a declining trend.
- Authorities were encouraged to implement structural reforms to:
  - Remove supply bottlenecks,
  - Increase agricultural productivity,
  - Improve the business environment.
- The report highlighted that alleviating structural barriers would bring substantial benefits in terms of reducing poverty and attaining sustainable and inclusive growth.

### Reforms and resilience
- Bold economic reforms undertaken in mid-2012 were credited with greatly improving the economy’s resilience, including:
  - Devaluing the Kwacha,
  - Adopting a floating exchange rate regime,
  - Liberalization of the foreign exchange market,
  - Introduction of an automatic fuel price adjustment mechanism.
- These reforms helped increase foreign exchange reserves from one month of import cover to over 3 months.

*Source: IMF Survey : Malawi: Tackling Inflation Key to Sustainable Growth (IMF NEWS, January 6, 2016)*

---

## Content in this bundle

- [Cr15345pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2015/_cr15345pdf.pdf){rel="external" type="application/pdf"}

---

## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [In The News](https://www.imf.org/en/news/search)
- [Press release](http://www.imf.org/external/np/sec/pr/2015/pr15561.htm)
- [Malawi and the IMF](http://www.imf.org/external/country/MWI/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar010616a_