Africa > Malawi

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Mr. Chris Papageorgiou, Hans Weisfeld, Ms. Catherine A Pattillo, Mr. Martin Schindler, Mr. Nikola Spatafora, and Mr. Andrew Berg
This paper investigates the short-run effects of the 2007-09 global financial crisis on growth in (mainly non-fuel exporting) low-income countries (LICs). Four conclusions stand out. First, for many individual LICs, 2009 was not extraordinarily calamitous; however, aggregate LIC output declined sharply because LICs were unusually synchronized. Second, the growth declines are on average well explained by the decline in export demand. Third, if the external environment facing LICs improves as forecast, their growth should rebound sharply. Finally, and contrary to received wisdom, there are few robust relationships between the cross-country growth variation and the policy and structural environment; the main exceptions are reserve coverage and labor-market flexibility.
International Monetary Fund. African Dept.

Abstract

The region's prospects look strong. Growth in sub-Saharan Africa should reach 6 percent in 2007 and 6¾ percent in 2008. The economic expansion is strongest in oil exporters but cuts across all country groups. This would extend a period of very good performance. In recent years, sub-Saharan Africa has been experiencing its strongest growth and lowest inflation in over 30 years.

Mr. Johan Mathisen
This paper computes Malawi's equilibrium real exchange rate as a function of its fundamentals as derived from economic theory. It finds evidence in favor of the equilibrium approach to exchange rate determination, with several variables (particularly government consumption and real per capita growth) found to drive movements in the time-varying equilibrium real exchange rate. The results also indicate that following a shock there is a rapid reversion of the real exchange rate to its time-varying equilibrium, with a half-life of reversion of about 11 months.
Mr. Abdelhak S Senhadji
This paper analyzes the borrowing behavior of a small open economy of a developing country that relies heavily on imports for its capital formation and faces an upward-sloping supply function of foreign loans. Decision makers face uncertainty about the longevity of external shocks. That uncertainty generates forecast errors that lead to substantial debt accumulation. It is found that the assumption of an upward-sloping supply function of foreign loans, which is a more realistic formulation for developing countries than the usual perfect elasticity, offers an alternative to the Uzawa-type utility function for analyzing asset accumulation in the small open economy framework.