The year 2015 was never short of persisting economic woes. In fact, listening to the tone of most economic experts, donors and other senior government officials this year economic performance was at its worst.
Their conclusion is purely based on how key macroeconomic indicators performed during the year. Government has almost missed all set macroeconomic targets for 2015, especially on real gross domestic product (GDP) growth rate, inflation rate and the exchange rate.
Poor economic performance was exacerbated by continued budget support suspension by donors, the January 2015 devastating floods and weak demand for Malawi exports, which in essence has widened the trade gap and denied this landlocked country, much-needed foreign exchange inflows.
The economy bled profusely, creating a weak private sector investment atmosphere and a slowdown in household consumption by eating into the purchasing power of many while pulling down economic growth rates in the process.
A phrase ‘the economy is passing through turbulent times’ was almost synonymous to Goodall Gondwe, Minister of Finance, Development and Economic Planning in the year.
It was, however, contrary to bold pledge he made an interview in June 2014 that he will bring about the much-needed ‘macroeconomic stability’ by lowering interest and inflation, maintain enough foreign reserves and grow the economy by remarkable rates “soon”.
By definition, economic stability entails low inflation, interest rates, narrow exchange rate variability and predictable foreign exchange availability
The 2015/16 National Budget was premised on a real GDP growth rate of 5.4 percent, an average inflation rate of 16.4 percent and an exchange rate of K450 kwacha to the dollar. That was in June, 2015.
Six months down the line, in terms of all the three indicators, their conditions have even worsened than expected.
For instance inflation soared, exposing helpless consumers to unscrupulous traders.
At 24.7 percent in the month of October, inflation rate remained high and already was above the rate of 23.9 percent in June last year when Gondwe himself touted that he will bring it down further.
Government also got it wrong on currency exchange projection. In the year, the local unit took a battering—and has since continued to be under severe pressure—weakening from about K210 to sell at around K670 in most authorised dealer banks (ADBs), according to the daily market rates published by the Reserve Bank of Malawi (RBM) as at Wednesday.
The kwacha continues to weaken on account of multiple factors including the strengthening of the dollar, continued speculation on the market, weak demand for Malawi’s major exports and escalated demand for the foreign currency as the economy more especially in the lean period.
In terms of real GDP growth rate, the situation is even worse this year.
A series of both external and internal shocks take their toll, knocking down the already feeble economic environment.
“In 2015, Malawi’s estimated rate of GDP growth has been revised downwards to 2.8 percent, compared to an estimate of 5.1 percent made in February,” said the World Bank in its publication on Malawi, the Malawi Economic Monitor.
It was vivid during the year that a decline in business activity, and disruptions to utility services such as water and electricity has had an adverse impact on growth.
Economy in reverse gear
As such, key sectors that drive the economy such as agriculture, information and communications technology (ICT), and wholesale and retail trade sectors did not tick, preventing the much-needed growth rate in the process.
RBM governor Charles Chuka remains positive though, that the economic reforms that began in 2012 averted a deep recession, suggesting that Malawi is still registering positive growth rates.
“I have very much hope that the people of Malawi realise that the next 50 years can only be better than the last only if we can achieve and sustain macroeconomic stability—basically defined as low and stable inflation,” Chuka told Business Review in an interview last month.
Economics Association of Malawi (Ecama) president Henry Kachaje is of the view that the economy might recover: “Though I doubt it will be next year 2016.”
But if and when it recovers, with the current policies the poorer will be left more desperate and more destitute, he suggested.
As we close the year, Malawi remains off-track the IMF programme.
Economic experts such as Edward Chilima, who is also executive director of Economic Association of Malawi (Ecama) say improved economic performance in 2016 and beyond, will require restoration of macroeconomic balances citing improved management of public expenditure.
But with the IMF waiting anxiously to see the 2015/16 National Budget to be revised (in February during the Mid-Year Budget Review), it will be interesting to see for now, how authorities will balance spending on key public social services by maximising few available resources while creating an enabling environment to restore business confidence and growing the economy by higher growth rates.