Covid-19 dampens key economic indicators

 Economic experts have painted a bleak future for the domestic economy amid destabilisation of key macroeconomic indicators by the Covid-19pandemic.

The experts, speaking in the context of the impending Mid-Year Budget Review Meeting of Parliament scheduled for February 8 2021, also project that should the agriculture sector perform poorly this year, most key economic variables will be thrown off balance.

Their observations come at a time government, in the2020/21 National Budget, projected that the economy would grow by at least 4.5 percent this year from last year’s 1.9 percent.

Besides, the K2.2 trillion budget Minister of Finance Felix Mlusu presented to Parliament on September 11 2020 also targeted an average inflation rate of 9.9 percent and policy rate—the rate at which commercial banks borrow from the Reserve Bank of Malawi(RBM)—of 13.5 percent during the current fiscal year.

But in separate interviews yesterday, far from Treasury expectations, economists feared macroeconomic fundamentals will most likely take a negative trajectory on the back of the Covid-19 pandemic.

B en Ka luwa , an economics professor at Chancellor College—a constituent college of the University of Malawi, said Covid-19 may affect

 the projected growth and impact inflation rate if the Affordable InputS Programme (AIP) faces performance hitches.

He stated that if the outcome from AIP will be as anticipated, then inflation rate will likely remain in single digits, which he said should translate into moderated interest rates.

In 2020, inflation rate averaged 8.6 percent, way below the 9.4 percent registered in 2019.

The benchmark rate or base lending rate is at 12 percent following a recent downward revision from 13.5 percent.

Kaluwa emphasised that inflation is mainly determined by food prices; hence, the likely positive outcome from AIP will be good news as it could bring macroeconomic stability.

However, the economics professor projected a more moderate economic growth rate than what was ambitiously stated in the current budget.

Kaluwa said: “There has been a tendency in the national budget to be more optimistic in projecting economic growth than what really comes out on the ground.

“With the current Covid-19 trajectory, we should anticipate moderate growth given the small windows of opening on movement of goods and

 services.”

Tepid growth is likely to see more Malawians falling into the ultra-poor poverty trap because development experts say to meaningfully reduce poverty, the Malawi economy needs to grow by at least six percent annually.

Kaluwa is not alone in his pessimism on growth. The Malawi Confederation of Chambers of Commerce

 and Industry also worries that expected low Covid-19 induced industrial output is likely to worsen joblessness as businesses fail to sustain operations and manage payrolls, among others.

In its Assessment of the Impact of Covid-19 on Employment in Malawi last year, Employers Consultative Association of Malawi and the International Labour Organisation also estimated that the pandemic would cost the Malawi labour market between 273 712 and 680 496 in current and future jobs by December 2020.

In the same vein, Kaluwa observed that with Covid-19 taking its toll on the already fragile economy, formal employment has already been hit hard with job losses, stressing that the population of productive citizens is lessening.

With the international lockdown, Kaluwa said Malawi should have artificial suppressed demand on imports that he said will also trigger temporary foreign exchange rate stability.

Since mid-last year, the local currency has been marginally depreciating against the United States dollar, shedding almost K40 from K740 to sell at around K780 as of last week.

The 2020/21 Budget was framed to focus on achievement of sustainable

 and inclusive growth ; macroeconomic stability; and sound financial management.

The objectives were premised to be pur sued through transparency and accountability, rule of law, enhanced resource mobilisation, efficient resource utilisation and provision of relevant infrastructure.

Earlier, National Planning Commission director general Thomas Chataghalala Munthali said cutting on waste by control l ing of f icers was required.

He also called for more aggression in revenue generation by following through with the tax-base broadening measures outlined in the budget and keeping donors on the table by agreeing to mutually beneficial terms and conditionalities.

Reacting to the observations by economic experts, Treasury spokesperson Williams Banda said government remained upbeat that this year, real GDP growth rate will rebound to 4.6 percent from a paltry projected growth rate of 1.2 percent in 2020.

“The increase in GDP growth is on account of the expected impact of the AIP on maize production as well as the positive impact of the many government projects lined up in the year. The growth projections are, however, dependent on normal weather outturn as well as a subdued covid-19 pandemic impact compared to last year,” he said.