President Peter Mutharika yesterday lowered economic growth forecast for 2020 to 1.9 percent, citing coronavirus (Covid-19) pandemic which he said has taken its toll on growth sector.
The latest projection by Mutharika is 3.6 percentage points shy from the earlier projection of 5.5 percent.
However, the projection still oozes some optimism as it is 0.9 percentage points above the International Monetary Fund (IMF) real Gross Domestic Product (GDP) forecast for Malawi for 2020 of one percent.
But Mutharika, speaking in his pre-recorded State-of-the-Nation (Sona) address at Parliament also announced a downward revision for the real GDP growth projection for 2021 from an anticipated growth of 5.8 percent to 4.5 percent.
Apart from Covid-19, the President attributed the slowdown in economic activity to post-election violence, which he said disrupted businesses and undermined revenue. The violence cost the economy an estimated K62 billion, the First Citizen said.
But reacting to the 2020 GDP projection, Budget and Finance Committee of Parliament chairperson Sosten Gwengwe yesterday was sceptical over the country’s possibility to even attain a 1.9 percent growth rate, describing the projection as still ambitious.
Said Gwengwe: “This 1.9 percent growth rate must have assumed that perhaps Covid-19 would end by this June. The reality is that Covid-19 is still here and the truth is that we may go into a recession come September or December. Hotels are struggling, schools have closed, industries are not producing because most countries [Malawi’s trading partners] are on lockdown. In short, there is no economic activity.”
A recession is a period of economic decline during which trade and industrial activity shrinks and is generally manifested by a fall in Gross Domestic Product (GDP) in two successive quarters.
Notwithstanding, Mutharika said Malawi’s economy has demonstrated resilience over the years.
He said: “We have survived one crisis after another. Rising from the ruins of Cashgate, crossing times of floods, and surviving scorching famines. We have survived the worst of the times.
“Although post-election violence and coronavirus have shaken the economy in the past fiscal year, the economy remained defiantly resilient because we built solid foundations for growth in the first five years.”
Reflecting on the year 2019, the President explained that his government still managed to achieve the 2019 targeted 5 percent of economic growth, an improvement from the 3.9 percent real GDP growth registered in 2018.
Mutharika also spoke highly of the continued macroeconomic stability, stressing that his administration has maintained record low interest rates, a stable currency, single digit inflation rates and low budget deficits.
Malawi’s headline inflation stands within the single-digit lane, at 9.4 percent, and has been on the downward spiral since December 2019, thanks to continued declining maize prices. Likewise, the local currency, the Kwacha, remains stable at around K740 to the $1 for about three years running (save for a few spikes).
On cushioning the effect of Covid-19 pandemic on livelihoods, Mutharika said his government has introduced tax reliefs for consumers and businesses, reduced fuel prices, increased health care spending and emergency cash transfers to vulnerable people.
The cash transfer intervention, he said, is targeting the peri-urban areas in Mzuzu, Lilongwe, Blantyre and Zomba cities, covering approximately 172 337 households where each household is receiving K35 000 per month.
Commenting on fiscal policy, the President admitted that domestic revenue outturn for the 2019/20 fiscal year will fall short of the target due to post-elections violence in the first-half of the fiscal year, and coronavirus during the second-half.
On the expenditure side, he said government will focus on creating incentives for the private sector to encourage growth and job creation, at the same time, accommodating coronavirus spending.
Speaking exclusively to our sister newpaper, The Nation, on Thursday, Minister of Finance, Economic Planning and Development Joseph Mwanamvekha hinted that the main focus of the 2020/21 National Budget is to mitigate the impact of the novel Covid-19 pandemic while also speeding up economic recovery and building up resilience against external shocks.
While describing the revenue situation in the country as “scary,” a tax expert Emmanuel Kaluluma explained that at the moment, there is no business activity that is effectively taking place in the country, hence there is no room for collecting more revenue by Treasury.