While COVID-19 cases in Malawi remain relatively low compared to other countries, the pandemic is negatively affecting the livelihoods of most people in Malawi. The exact impact pathways and actual extent of COVID-19’s economic impacts are only just emerging. In June this year, Bob Baulch and Rosemary Botha presented the initial results of IFPRI’s modeling of the possible short-term economic impacts of COVID-19 control efforts on the Malawian economy in 2020. This presentation created substantial interest and raised questions on the economic impacts of COVID-19 on Malawi beyond 2020. There was also interest in looking into additional impact channels and distributional consequences of COVID-19 restrictions.
To provide answers to these questions, during an October 13 virtual brown bag seminar Bob Baulch and Rosemary Botha from IFPRI Malawi along with Karl Pauw from IFPRI HQ presented an updated analysis of the economy-wide impacts of social distancing, external shocks and other measures on the Malawian economy during 2020 and 2021. The presentation considered two months of full social distancing in April/May, followed by two easing up scenarios (fast and slow recovery) from June 2020 onwards until the end of 2021. As in the earlier June presentation, the analysis presented uses a SAM multiplier model to measure both the direct and indirect impacts of COVID-19 restrictions on production, income and poverty. It also simulates the effects of external shocks associated with disruptions in exports and tourism, foreign direct investment, and remittance flows on GDP and sector growth, the agri-food system, and government revenues.
Comparing the effects of COVID-19 restrictions and shocks, the study found that social distancing and external shocks result in losses of approximately $39 million per week, compared to $49 million per week under a hypothetical 21-day urban lock down.
The largest relative impacts of social distancing in monetary values, stated Botha, are on services (-$215m), followed by industry (-$70m) and agriculture (-$28m). While the agriculture sector GDP only declines by 5%, the agri-food systems contract by 10.2% due to the direct and indirect effects of restrictions combined with external shocks. Over two months of social distancing declining tourist spending accounts for a fifth of short-term economic losses (Figure 1) followed by the slowdown in manufacturing operations and closure of schools. Reduced tobacco export revenue and falling foreign direct investment are the most important external shocks.
The SAM multiplier analysis also looked at possible changes in per capita income and poverty. Urban households are most affected by COVID-19 restrictions and external shocks. The poorest fifth of households are the least affected but still lose about 12.6% of their per capita incomes while the richest fifth of households lose about 17% of their income during two months of social distancing. Looking at poverty impacts, Botha explained that the national poverty rate increases by 8.4 percentage points with 1.5 million more people falling into poverty following two months of social distancing.
Botha then presented two different recovery scenarios (Figure 2) during 2020 and 2021. Depending how fast restrictions are lifted, national GDP decreases by 8.2 to 11.2% in 2020 and then by 0.4 to 2.1% in 2021. Under both scenarios, GDP recovers close to its level in late 2019 by the end of 2021.
The simulations also looked at the gendered impacts of COVID-19 on poverty. Baulch explained that differences in incomes for female and male headed households result in slightly higher poverty rates for female headed households after Q2 of 2020. However, these differences disappear by the end of Q2 of 2021 under both recovery scenarios.
Comparing the Malawi modeling results to those conducted by IFPRI in other countries, Baulch noted that while the short-term impacts of COVID-19 restrictions on the Malawi economy are not as heavy as in those African countries, which have had more stringent restrictions, they are still serious.
Baulch concluded the presentation by highlighting some policy implications. Minimizing the economic impacts of COVID-19 requires: (a) maintaining open markets and borders with appropriate hygiene/social measures and (b) social protection measures to protect the most vulnerable, especially informal services/small retailers in urban areas. Looking forward, Baulch further explained that monitoring the impacts of COVID-19 on the Malawian economy should pay special attention to: (1) tourism and exports, (2) manufacturing activities, (3) the agri-food system, and, (4) the urban informal service sector Furthermore, he pointed out that there is a “need to think beyond ‘flattening the curve’ to ‘building back better.”
Find the presentation slides below.
Download the presentation here. (PDF 754 KB)
Links
IFPRI Resources and Analyses on Covid-19
COVID-19 Policy Response (CPR) Portal
Featured Image: Photo Credit World Bank Malawi
