After a tepid rebound in 2021, Malawi’s economy entered another slowdown this year.

Due to adverse weather conditions, agriculture became a drag on growth rather than its principal driver, declining by 1.0 percent relative to 2021.

The worsening balance-of-payments crisis has led to an acute foreign exchange shortage, affecting all those producers that import inputs, and causing shortages of fuel and other essential goods.

Headline inflation rose to 26.7 percent in October 2022, the highest level since June 2013. The invasion of Ukraine by the Russian Federation in February 2022 and the subsequent further rise in global commodity prices contributed to an increase in domestic prices for fuel, fertilizer, cereals and cooking oil. The domestic price of fuel has more than doubled since February 2022, while food inflation soared to 34.5 percent in October 2022. The World Bank’s Macro-Poverty Outlook (October, 2022) estimates that poverty based on the international poverty line of US$2.15/day will increase by 0.5 of a percentage point in 2022, to 71.2 percent.

Lower yields and high global and domestic prices are pushing many Malawian families into food insecurity. According to the joint assessment of the IPC Working Group, one in three Malawians is prone to food insecurity and, for the 2022/23 lean season, one in five Malawians will face crisis levels of acute food insecurity.

Amid headwinds in the global economy, Malawi’s economy is projected to show subdued growth and faces considerable downside risks.

The lack of sustained economic growth, along with continued inflationary pressures and recur- rent weather shocks, will make it more difficult to reduce poverty. Meanwhile, any further external shocks and sustained inflation are likely to result in increased poverty and cause rising food insecurity. The increased frequency and severity of shocks related to climate change create additional downside risks and will require a sustained focus on adaptation investments. The World Bank Country Climate Development Report for Malawi finds that climate change shocks could reduce GDP by up to 9 percent by 2030. It could also push another 2 million people into poverty by 2030. However, these impacts can be significantly mitigated by policies and investments supporting adaptation, including in land and forest restoration and management, in improving the country’s stock of infrastructure to better withstand extreme weather, and by supporting the resilience of households and the private sector.

The 16th edition of the Malawi Economic Monitor (MEM) calls for urgent actions to stabilize the econ- omy and enhance growth.

This includes addressing three key areas:

1. Stabilizing the economy;

2. Stimulating agricultural export competitiveness and market-driven growth in the economy: This includes a sustained emphasis on advancing agricultural commercialization, improving the productivity of firms, and increasing and diversifying exports. It will also be important to deliver on the planned reform of expensive and poorly targeted subsidies, such as those for the Affordable Input Programme (AIP), and remove distortions that constrain firms’ growth.

3. Protecting the poor and strengthening resilience: As another difficult lean season approaches, including the heightened risk of extreme weather events, it will be essential to advance implementation of the significantly expanded Social Cash Transfer Program and other assistance programs. In the context of fiscal pressures, it will also be important to continue prioritizing the delivery of essential services to the most vulnerable, while improving the efficiency and effectiveness of social sector expenditure.