Macroeconomics - Malawi Economic Challenges

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Economic policy of GDP

Below is the gross domestic product (GDP) of the Malawi and help to paint the picture and the unfortunate position that the nation finds itself. Cash gate was the name given to the enormous funds that were stolen from government coffer equalling to about 250million USD a scandal , considering that the GDP worth is annual less that 6billion USD, that's when the impact is better to understand. It is clear to see the impact that Cash gate scandal had on the country, but even today the GPD is considerably low in comparison the high performance of the year of 2011 and years prior.

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Government Solution

The cash gate scandal and saw a large volume of donor funds removed from the economy, donor confidence disappear and since then the economy is struggling to perform. The government is also seeking to boost trade and decrease the unemployment rate. Malawi is too dependent on its tobacco sales to bringing in forex into the country, a low performance by the tobacco sector usually mean the rest of the economy suffers, as a result, the government is promoting diversification of agriculture farming and is boosting investments in other areas of the economy such as tourism and mining.

Economic policy of labour Market (unemployment)

“Its data shows that over 70 percent of young Malawians aged between 15 and 29 are employed in the informal sector. Malawi has one of the highest rates of working poverty, which stands at around 60 percent on $2 per day.” (Santorri, Chamley,2013)

This steady climb in the numbers of people that are jobless increases, the lack of jobs is being felt by all ages and all areas of the economy. Malawi is suffering from a high rate of unemployment, and at the moment the number is on the increasing , although the nation experienced a higher number of people that were employed in the mid 90’s and Malawi is facing serious problems in the job creation sector.

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Indicator shows that Malawi’s Total Unemployment rate is 7.5% high than just the past five years ago, in addition, the Female unemployment rate has risen to 8.70% while the Mala unemployment rate has also shot up to 8.70%. [pic 6]

The study shows by an independent study present that in actual fact, the Total youth Employment rate is 13% higher than five years ago, this is a major herbal for the governing party DPP.

Apart from the issue of governments need to create jobs from the population, workers in Malawi experience some of the lowest wages per day capital in the world with the guardian newspaper indicating the figure to be around 2us$ per day. Below is a the Phillips Rate of Change of wage against Unemployment that helps us to understand the situation that workers find themselves.. [pic 7]

Government solution

There are a number of policies that the government is implementing in order to reduce the level of unemployment, including among it the demand side policies to assist the reduction of the demand deficient unemployment and supply-side policies which are known to reduce structural unemployment.

Economic challenge or low revenue

Malawi has got a very big problem in generating revenue from its citizen, one big reason being that the major of the citizen are unemployed and that the GDP is not growing very fast, in fact, quandi.com, stated that there has been very little change in the aspects of government revenue in increase again a major reason is because of the Cash gate scandal that drove away a great number of foreign currency and investment out of the country.

Below if the graph of the Laffer curve, the theory below helps us to understand the relationship that there is a distinct relationship between the tax rates and tax revenue.

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This theory tells us that when every taxes increase so do tax revenue, this chart was designed by Arthur Laffer. His model helps to demonstrate a collective view of government collections. However with the low rates of personal income workers have to endure there is only so much that the government can do in the form of raising taxes and that is one reason why the government has chosen not to increase the personal income taxes for quite a long time.

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What is also important to note is that the number of people that do work is a small amount in comparison to the total population of the nation, the illiteracy rate is low and this also presents jobs for the government. The lack of employee meant means that large numbers of the citizen are unable to contribute revenue to the government.

Government Solution

There are a number of ways which the government is trying to do to help increase the amount of the revenue it brings in, a few of those are listened below as is written by the revenue office of Malawi.

- “Returning residents will have to clear, duty-free, a motor vehicle owned for more than 12 months under CPC 430.

- Duty-free on the importation of diagnostic and laboratory reagent under CPC 405 by Health Institutions.

- Removal of VAT on imported goods on water supply.

- Removal of duty on imported electronic fiscal devices.

- Removal of taxes applicable on large buses with seating capacity of more than 45 passengers (including the driver).

- Reintroduction of the Industrial Rebate System. This is a major relief to the manufacturing sector; however, given the abuse of the scheme in the past and the Minister’s intimation, it will be subject to serious monitoring by the Malawi Revenue Authority (MRA). Taxpayers will be required to register with the MRA.

Other measures are in alignment with the Common Market for Eastern and South Africa (COMESA) and South African Development Community (SADC) tariff structures.” (Vyamala Moyo,2016).

The government also has enforced policy to construct more school out further into the rural areas.

Challenge of Malawi’s Food Security Policy

“Recurring droughts afflict Malawi’s agriculture sector, threatening the livelihoods of Malawi’s smallholder farmers, who constitute