Ecama sees recovery under threat in 2021

The second wave of Covid-19 is posing serious threats to the recovery of the country’s economy this year, the Economics Association of Malawi (Ecama) has warned.

Ecama’s concern comes in the wake of the second wave of the coronavirus that is set to dampen economic prospects as it is did in 2020 by lowering economic growth.

In a written response on Tuesday, Ecama president Lauryn Nyasulu said while authorities projected recovery to start in 2021, the coming in of the second wave of Covid-19 and the subsequent slowdown in business could reduce domestic revenues.

This, she said, is a setback to improved debt management in view of the high public debt at K4.1 trillion the country holds.

Nyasulu said with limited fiscal space and revenue underperformance, government resorts to costly domestic borrowing, which also crowds out private investment that has potential to stimulate the economy.

She said: “In 2020, revenue from trade taxes declined as a direct consequence of Covid-19 containment measures.  These are not expected to improve with the coming in of the second wave.

“This may also lead to a worsening of the balance of payment position if not cushioned by foreign inflows.”

With these challenges, Nyasulu said government needs to prioritise its expenditure through fiscal consolidation to ensure that domestic and foreign borrowing are contained.

“Containment of domestic borrowing will reduce domestic debt levels, result in stable interest rates and low and stable inflation,” she said.

Out of the K4.1 trillion total public debt stock, domestic stock alone accounts for K2.5 trillion or 30.8 percent of the country’s nomimal gross domestic product (GDP) pegged at K8.1 trillion.

Projections by the International Monetary Fund (IMF) indicate that Malawi’s debt stock will likely hit 78 percent of the country’s total wealth as measured by nominal GDP this year.

IMF also projects Covid-19 pandemic to push down tax revenues by up to 8.4 percent in the 2020/21 financial year, which translates in $83.8 million (about K62 billion) to $178.1 million (about K133 billion) of lost revenue in comparison to the no Covid-19 case.

But Ministry of Finance spokesperson Williams Banda said on Tuesday that Malawi Revenue Authority is collecting almost 95 percent of the target despite the impact.

“With the reforms in place, we should be on course due to growth emanating from agriculture and projects lined in the year.”