Malawi: external debt restructuring making some progress

Medium-term outlook: El Niño unease

We were confident about 2023 due to expectations of favourable weather and improving FX liquidity, with attendant increases in agricultural and non-agricultural output.

However, several negative risks have since arisen, which may see GDP growth undershooting our 3.0% y/y forecast in the Jan AMR edition. 2023 thus far has been subject to climate shocks and entrenches FX shortages. Our new forecast now stands at 2.0% y/y. This would still exceed growth of 1.2% y/y in 2022.

Cyclone Freddy struck in Mar, in the southern region (8% of tobacco production). Several northern regions had drought, lowering agricultural output as well as non-agricultural output. This on top GDP growth plummeting to 1.2% y/y in 2022, from 4.6% y/y in 2021, due to the Russia-Ukraine war and storms Ana and Gombe which sharply diminished agricultural and manufacturing production as well as damaged power- generation infrastructure.

The World Meteorological Organization forecasts El Niño weather patterns from H2:23. The agricultural sector is particularly vulnerable. Malawi, almost entirely reliant on rain- fed agriculture (90%), faces prolonged droughts during El Niño events. If so, agricultural yields diminish and food prices increase, with knock-on effects for food security and poverty, all of which spills over to an economy dependent on agriculture as primary source of jobs and exports. This also implies poorer FX liquidity. It also spells less disposable income, slower wholesale and retail growth, compounded by higher inflation.

However, because the major rainy season in Malawi is from October to April, and the season for 2022-2023 was still during a La Niña weather pattern, 2023 production should only be impeded by cyclone Freddy, with El Niño consequences only playing out in 2024.

Base effects should still benefit the manufacturing sector. However, agro processing may disappoint. Further downside risks include FX shortages and troubled power supply.

Still, mining should still provide some support, especially as of 2024, due to the reopening of the Kayelekela uranium mine by Lotus Resources Limited. In addition, there should be increased extraction as the government plans to formalize artisanal mining in the mining sector.