Malawi’s Reserve Bank Governor Charles Chuka has expressed confidence in the 2012/13 national budget, saying it will help the country’s economy take a positive turn.
Chuka was speaking at a business dinner organised by the Economics Association of Malawi (Ecama) in Blantyre on Friday.
“The country may move up and down. It may appreciate and depreciate. That is likely to happen and it is the nature of markets.
“But we are hopeful we will stabilise because we have a lot of [groundwork]. If the International Monetary Fund (IMF) approves our programme on Monday [today], we will be able to steer the country in line with government’s recovery policy,” he said.
He said the country has already passed through worst times and there will be no need for further devaluation.
“The currency depreciation of up to 63 percent since the first devaluation is quite a lot and that with the kind of interest rates we have put in place, there is no need to devalue further.
“But we think the high interest rates are necessary to ensure that we contain pressures that we see in terms of inflation rising. I am sure by next year, we should not be talking of the high interest rates,” said Chuka.
Comment on borrowing, he said government will not borrow in this fiscal year.
“In the past few years, government did borrow a lot than was required under the law. But in this financial year, there will be no borrowing.
“This is a big plus for this government as the Public and Finance Act will be followed,” he added.
Press Trust Group chairperson Professor Matthews Chikaonda agreed with Chuka that reversal of certain taxes in the new budget is an incentive for the private sector to invest more in the country.
“We were affected in many ways as Press Trust Group. PTC Group, for example, we reviewed its operations because of the minimum tax on revenues that was introduced in the zero-deficit budget.
“It turned out that within the PTC Group, we had to borrow to pay taxes. If you think about that, it is completely illogical for you to be in business. Even if you make losses, you had to borrow elsewhere to pay the tax.
“So we announced that we were going to close 53 shops in the PTC Group and that would leave us with 27 shops. We said we would monitor the 27 shops, if they do not make profits, then we were going to close the whole operation,” said Chikaonda.
He, however, said with the removal of minimum tax in the budget, the remaining shops will not be closed.
“In fact, we will add the shops to expand the group,” said Chikaonda.
On the Carlsberg Group, he said there was a change in the investment tax allowance that was there when they were planning to expand its capacity for the bottling plant at both Coca-Cola and Carlsberg.
“That reduction in the investment tax credit resulted in us spending more than $3.5 million, add that to what we were already spending in expanding its capacity.
“So, we decided that after that expansion, we were not going to do other operations. But with the reversal of that aspect of the law, Carlsberg and Coca-Cola will expand and build capacity for export. That will help boost the country’s foreign exchange earnings,” said Chikaonda.
He described the reversal of the investment tax credit as a big incentive for the private sector.
Ecama plays an advisory role in the economy and the dinner was organised to share its vision and solicit views on how economists can work together to achieve the organisation’s vision.
“In these times of economic challenges, we need a strong association that is able to contribute and advise on economic issues. As Ecama, we need to research and provide policy options, checking government policies and ensuring that they are in line with economic principles,” said Ecama acting president Edward Chilima.
