Macroeconomics - Malawi Economic Challenges

Table of Content

Introduction………………………………………………………………………………………………………………… 2

Malawi………………………………………………………………………………………………………………………….3

Economic Policy…………………………………………………………………………………………………………….3

Main body………………………………………………………………………………………………………………………3

Economic challenge of Inflation……………………………………………………………………………………..3

Government solution……………………………………………………………………………………………………..4

Economics challenge of GDP growth………………………………………………………………………………4

Government Solution…………………………………………………………………………………………………….4

Economic challenge of the labour market (unemployment)…………………………………………..5

Government solution…………………………………………………………………………………………………….6

Economic challenge of low tax revenue………………………………………………………………………..6

Government solution…………………………………………………………………………………………………….7

Economic challenge of food shortage…………………………………………………………………………….8

Government solution…………………………………………………………………………………………………….9

Recommendation for the Government………………………………………………………………………….10

Conclusion………………………………………………………………………………………………………………………11

The reference…………………………………………………………………………………………………………………12

Macroeconomics

Introduction

In this assignment, we seek to examine to the very core of economic challenges that Malawi faces and analyze the possible solutions which the government to enforce to bring about stability and change throughout the nation. Specifically, this rapport will focus on the topics of Malawi’s high rate of inflation and the slowing down of the country’s GDP growth. These documents will also cover the battle of the food shortage situation and the increasing numbers people that are unemployed and lastly, this rapport will looking into how the government aims to address the issues the nations has low tax revenue intakes by the Malawi Revenue departments.

Malawi

The world’s economy is drastically changing and with each turn of the annual calendar brings with more and more levels of uncertainty of what hidden challenges its nation could face. A downturn in economic performance from one nation across the global can have a dramatic impact on others nations not even on the same continent, we saw examples of this during the world recession experienced in 2008. On country that experience such harsh effects was Malawi, and in this assignment the rapport seeks to examine some of the economic policies challenges that the nation is facing today, and looking into how the government aims to address the issues the nations has

Malawi’s Economy is a relatively small country that can be found at the bottom of Africa with a population of 17million, the economy ranks among many analysts as one the world's least developed country. Under the leadership of former President Dr. Bingu Mutharika, during the period o f 2004 to about 2010, the nation experienced an elevated level of economic growth and a great level of food security. . “The scandal, known as “castigate,” prompted donors to suspend all budget support, forcing the government to print money to cover the deficit.” (IMF,2016).   Forwarded to 2015, Malawi is facing the reversal in fortune, the country is now facing one the of the challenging economic period ever, under the leadership of President Peter Mutharika brother of former president Bingu Mutharika.

Economy Policy

Good economic policies can help to not only alleviate many challenges face by a nation but produce a great opportunity for a countries growth and increase it’s an ability to be more self-reliant.  A good policy will bring about employment, stability and confidence to the economic arena, but bad economic policy can cause huge disruptions and pain across an entire nation with a short period of time.

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Main body

Inflation Economic Challenge

One major area that Malawi is facing major problem is the continued fall in the value of the national currency the Malawi Kwacha, and this has been caused but the extremely level of inflation that the country is experiencing. In Nyasa Times January 25, 2016, article “Malawi kwacha falls to weakest level ever” Malawi’s Finance Minister Goodall Gong admitted to the newspaper the issue, only this year the kwacha has already fallen  by 6.4percent against the US Dollar.  

“Currency depreciation is a decrease in the level of a currency in a floating exchange rate system due to market forces. Currency depreciation can occur due to any number of reasons – economic fundamentals, interest rate differentials, political instability, risk aversion among investors and so on.”(instepedia.com,2016). The cost of living is becoming more and more expensive while the mini wage and rate of pay are much increase at a much slower rate.

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Government Solution

There are a number of solutions that the government has been implementing to help ease down the high rate of inflation, for a start the government increased the interest rate for borrowing for borrowers. In addition, the government seeks to increase the interest rate on saves and also the government is employing other methods to lower exports and increasing imports, this solution that the government is using is in accordance with the Aggregate Demand of growth model. Below is a graph that demonstrates the AD theory model to reduce inflation, graph was provided by (economicshelp.org.2016