Adapting to extreme weather conditions in a developing country: an economywide policy assessment from Malawi

Weather related shocks lead to pervasive welfare outcomes. Using prior information from a rapid post-disaster needs assessment and a social accounting matrix for Malawi, the author assesses distributional impacts and resilience enhancing pathways in a computable general equilibrium (CGE) framework. This study investigates the economic impacts of Cyclone Idai in Malawi, considering a mix of mitigating policies. Results reveal overall declines in production, trade and welfare. On average, gross domestic product (GDP) at factor cost decreases by 1.5%, primarily driven by sectoral output reductions. Consequently, exports plummet by 5.3%, while production losses lead to increased cereal imports due to soaring demand. However, borrowing and foreign exchange constraints limit imports of other commodities, except for essential food items. Consequently, household welfare deteriorates across all scenarios. A critical insight from this study underscores the significance of government policy choices in shaping economic outcomes during disasters. In Malawi's context, the study demonstrates that fostering a culture of saving, maintaining a government with restrained fiscal tendencies, and avoiding excessive taxation can mitigate production losses and induce investment. Additionally, ensuring exchange rate stability in the short term can help control rising relative prices and facilitate cost-effective imports, provided efforts are made to prevent domestic borrowing costs from escalating.