Aid, fiscal prudence to anchor 2013 growth

Malawi’s economic growth this year will be supported by the recovery of aid, expansion of agriculture subsidies, fiscal discipline, possible stabilisation of the exchange rate, improved investor sentiment and increased uranium production.

Coming from a subdued gross domestic product (GDP) growth of 1.9 percent in 2012, Malawi’s economy is expected to pick up this year, with government targeting a growth rate of 5.7 percent while the International Monetary Fund (IMF) puts it at 5.5 percent and the Economist Intelligence Unit (EIU) projecting 4.6 percent expansion.

But economic analysts argue that Malawi needs to consistently grow by over six percent to result in a positive trickle-down effect on the majority of Malawians. In recent years, Malawi’s economy grew by 7.5 percent on average and hit 9.8 percent in 2008, a growth only second to oil-rich Qatar.

But Nico Asset Managers, in its monthly economic report for February 2013, says the economy has a number of risks that could dampen the projected growth.

It cites high interest rates, currently hovering at above 40 percent, which may deter growth as the cost of borrowing gets higher, slowing down private sector growth touted as critical to any country’s meaningful economic growth.

The ever rising inflation rate at 35.1 percent as of January, according to the National Statistical Office (NSO), and continuing depreciation of the currency could also pose a threat to economic growth.

“Recovery of the economy will boost donor and investor confidence; hence, increasing private sector activity. Increased private sector activity will boost economic growth,” says the investment advisory firm.

It says the export-led growth due to continued depreciation is expected to be negatively affected by the ongoing currency wars in which countries are using ‘beggar-thy-neighbour’ policies of devaluating their currency to reduce prices of the domestic goods and making imports more expensive.

Government is currently implementing an Economic Recovery Plan focusing (ERP) on five priority areas of agriculture, mining, tourism, transport and infrastructure and ICT in the hope of achieving a quick economic turnaround.

But Nico Asset Managers argues that ERP still needs more time than has been projected by authorities.

Economics professor at Chancellor College, Ben Kaluwa, said on Wednesday the ramp-up in agriculture production and increased uranium production at Kayelekera mine in Karonga could help the economy to jack up.

“But there are also other factors that have to be considered for the economic growth to be robust such as boosting export potential to increase foreign exchange earnings,” he said.