Figure 1: Current Account Balance in Malawi (2016-2024)
Source: IMF 2019, Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement; IMF 2018, Malawi Ninth Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections.
Total merchandise imports to Malawi increased to USD 2.8 billion in 2018, from an annual average of USD 2.4 billion for 2015 to 2017[1]. Exports increased to USD 1.0 billion in 2018, from an annual average of USSD 995.4 million for 2015 to 2017[2]. The slower growth in exports has deteriorated Malawi’s current account deficit from an average of -USD 1.2 billion (approx. -18.6% of GDP) for 2016 to 2018, to a deficit of -USD 1.4 billion (approx. -18.9% of GDP) in 2019[3]. The slower growth in export earnings has deteriorated Malawi’s balance of payments but gross official reserves have increased due to the persistent capital and financial account surplus.
Figure 2: Capital and Financial Account Balance in Malawi (2016-2024)
Source: IMF 2019, Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement; IMF 2018, Malawi Ninth Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections.
Malawi’s capital and financial account balance improved from a surplus (net inflows) averaging USD 788.4 million (approx. 12.5% of GDP) for 2016 to 2018, to a surplus of USD 1.4 billion (approx. 17.9% of GDP) in 2019[4]. As a result, Malawi’s balance of payments deteriorated from an average of USD 3.7 million (approx. 0.01% of GDP) for 2016 to 2018, to a deficit of -USD 80.9 million (approx. -1.1% of GDP) in 2019[5]. Gross official reserves increased from USD 605.0 million in 2016 to USD 750.1 million in 2018, and continued increasing to USD 777.0 million in 2019[6]. During this period, Malawi experienced decreasing inward FDI inflows.
Inward FDI inflows decreased from USD 509.7 million in 2015 to USD 90.2 million in 2017, before recovering to USD 101.6 million in 2018[7]. As a result, Malawi’s inward FDI stock increased from an average of USD 992.7 million for 2015 to 2017, to USD 1.4 billion in 2018[8]. Malawian citizens investments abroad have increased as inward FDI to the country decreased.
Figure 3: Gross Official Reserves and Balance of Payment in Malawi (2016-2024)
Source: IMF 2019, Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement; IMF 2018, Malawi Ninth Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections.
Outward FDI outflows increased from USD 4.0 million in 2015 to USD 5.0 million in 2017, and continued increasing to USD 6.7 million in 2018[9]. As a result, Malawi’s outward FDI stock increased from an average of USD 89.9 million for 2015 to 2017, to USD 125.6 million in 2018[10]. These capital flows have improved Malawi’s balance of payment and the country’s net international FDI position.
Figure 4: Inward Foreign Direct Investment in Malawi (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Malawi’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. Outward FDI flows have been increasing as inward FDI inflows decreased. Malawi’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 1.1 billion (approx. -18.9% of GDP) for 2015 to 2017, to net liabilities amounting -USD 1.4 billion (approx. -19.8% of GDP) in 2018[11].
Figure 5: Outward Foreign Direct Investment from Malawi (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
At these levels Malawi’s foreign liabilities remain sustainable as a proportion of GDP. Given the relatively narrow domestic capital markets, Malawi should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on agriculture-based exports. Nevertheless, Malawi’s balance of payments surplus is projected to recover to a surplus in the medium-term, which is projected to support growth of gross official reserves.
Figure 6: International Foreign Direct Investment Position in Malawi (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Improvements in the capital and financial account surplus should support a recovery in Malawi’s balance of payments despite the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -USD 1.4 billion (approx. -18.9% of GDP) in 2019 to an average of -USD 1.5 billion (approx. -15.7% of GDP) from 2020 to 2024[12]. Malawi’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 1.6 billion (approx. 17.4% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to recover to a surplus of USD 133.0 million in 2020 to a surplus of USD 180.5 million in 2024, which is equivalent to an average deficit of USD 159.1 million (approx. 1.7% of GDP)[14]. Thus, Malawi’s gross official reserves are projected to increase from USD 950.0 million in 2020, to USD 1.5 billion in 2024[15].
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020]; IMF 2018. Malawi Ninth Review Under the Extended Credit Facility Agreement, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.; IMF 2018. Malawi Ninth Review Under the Extended Credit Facility Agreement, ibid.
[5] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.; IMF 2018. Malawi Ninth Review Under the Extended Credit Facility Agreement, ibid. There are relatively significant errors and omissions in Malawi’s balance of payments data equivalent to USD 19.4 million in 2016, USD 815.8 million in 2017 and USD 354.9 million in 2018.
[6] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.; IMF 2018. Malawi Ninth Review Under the Extended Credit Facility Agreement, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.
[13] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.
[14] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.
[15] IMF 2019. Malawi Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement, ibid.