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From Climate Risk to Resilience: Unpacking the Economic Impacts of Climate Change in Malawi

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Climate change is not projected to materially alter Malawi’s climate profile. Instead, it is likely to exacerbate existing climate vulnerabilities by increasing the frequency and intensity of cyclones, floods, and droughts. This is largely due to increased uncertainty around future precipitation levels. These adverse effects have already started to materialize and are expected to increase substantially over the next decades, particularly if efforts to reduce global greenhouse gas emissions by high-emitting countries are insufficient. Climate change is also projected to increase average annual temperatures across the country.

Climate change is expected to significantly affect Malawi’s economy, mainly because of its dependence on climate-sensitive economic sectors and its low capacity to take adaptation measures due to preexisting macroeconomic vulnerabilities. Malawi’s sensitivity to climate shocks is underpinned by significant environmental degradation, in particular deforestation, watershed degradation, and poor soil management.

The two main impact channels are likely to be agriculture and road infrastructure. In agriculture, the increased uncertainty around future precipitation levels in Malawi will likely result in higher variability in crop yields. Climate change is projected to exacerbate preexisting environmental degradation challenges, including soil erosion. These effects are particularly problematic due to Malawi’s high poverty rate, lack of economic diversification (the agriculture sector represents one-third of the economy and employs over 70 per cent of the workforce), and significant dependence on rainfed production (about 80 percent of the population). Climate change is likely to significantly impact Malawi’s road infrastructure, mainly due to the increased risk of flooding, which would have broader economic and social knock-on impacts.

The Government of Malawi (GoM) is well aware of these risks and has taken proactive measures to address them. These include various sectoral and economywide strategies, climate policies, and frameworks that consider the need for adaptation measures. Malawi is also in the process of developing a more comprehensive National Adaptation Plan (NAP).

However, these efforts have failed to materialize into meaningful mobilization of funding for adaptation. This is due to various factors, including challenges in translating high-level adaptation plans into investment pathways (and bankable infrastructure projects), difficulties in accessing climate finance given the complexity of the current climate finance architecture, and macroeconomic vulnerabilities, in particular unsustainable public debt levels.

This report recommends that a potential ARIP in Malawi support the GoM in taking a transformative approach to climate adaptation and resilience, particularly for the agriculture sector and for road infrastructure. This is because climate change is likely to have the most impact on Malawi’s economy through these channels and because research finds that prioritizing agricultural development would be most effective at both incentivizing economic growth and reducing poverty. More precisely, the report suggests that an ARIP could focus on (i) supporting the GoM in advancing its NAP process, including the development of adaptation and resilience investment pathways, linked to project pipelines and underpinned by a robust cost-benefit analysis of climate adaptation and resilience measures; (ii) enabling the mobilization of funding for climate adaptation at scale and in a sustainable manner for Malawi’s economy; and (iii) improving domestic, regional, and international engagement and coordination on adaptation and resilience strategy development, implementation, and evaluation, including effective disbursement of funding mobilized through the platform in line with the national level strategy

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