About 18 months after the Economic Recovery Plan (ERP) kicked off there are still doubts on the achievements of the blueprint and whether it is on track.
The ERP which brought some painful measures including the liberalisation of the exchange rate and removal of fuel and utility subsidies was, nevertheless, hailed by the some because it was hoped that it would bring the ailing economy back on track.
Today, over 18 months after its introduction, authorities, experts and indicators give mixed indications on the success of the largely hailed economic blueprint.
Promises, hopes
The ERP spans five years, but it has some critical targets within 18 months that is by December 2013. The targets include 100 percent food security, a single digit inflation rate, and one power station, all to be achieved by December 2013.
The ERP officially launched in September 2012 saw President Joyce Banda and her deputy announcing that they would cut their salaries by 30 percent to show commitment to controlling expenditure.
The 2012/13 budget, dubbed an austerity budget, also showed commitment to enhance economic growth by ensuring that government spends within its means.
In the budget statement, government promised that it would develop the economy by consolidating macro-economic stability, reinforcing resilience to shocks, improve governance in public financial management, strengthen financial oversight and support private-sector led growth and export diversification.
But as time went by, the future looked gloomy with rising inflation while the kwacha nosedived, rose and nosedived again as the Reserve Bank of Malawi (RBM) implemented a tight monetary policy to bring the situation under control.
Experts also described the austerity budget botched as expenditures rose beyond our revenues.
But although sceptics pointed to an exchange rate that had overshot and inflation that had surged as reasons to abandon the reforms, the government argued it would still maintain the course.
According to a budget statement by the former minister of finance Ken Lipenga, government marched on although there were some resistance and criticism. He later argued there were signs that the ERP was bearing fruits.
Not good enough
An analysis of the real sector under the ERP which has five key areas including agriculture, energy, tourism, mining and transport and information technology communications (ICT) show a murky picture.
Recent estimates indicate that Malawi will achieve a gross domestic product (GDP) growth of about five percent, marginally below the December 2013 target of 5.7 percent.
According to RBM data, mining and quarrying is estimated to expand by about 10 percent from 15 percent in 2012 and the central bank has explained that growth for agriculture, lime, gemstones and phosphates have been revised downwards. Uranium growth is projected at 19.4 per cent in 2013.
The RBM also indicates that growth in information and communication services—another key sector—will rise in 2013. The sector will grow by 9.1 percent in 2013, up from 6.8 percent growth in 2012 due to an increase in mobile phone and internet services.
Transport and storage services are also expected to grow by 5.3 percent in 2013 compared to 4.7 percent growth registered in 2012 thanks to an increase in haulage following the bumper agricultural yield and the rebound in wholesale and retail activities.
The central bank also indicates that agriculture—Malawi’s mainstay—is estimated to grow by 6.1 percent in 2013 after contracting by 2.3 percent in 2012. Tobacco production grew by over 100 percent from 79.8 million kilogrammes (kg) to 168.7 million kg.
Although electricity is still the number one problem to businesses, according to a recent survey done by the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), Malawi has added 64 megawatts to the grid.
According to Escom, Kapichira Phase II has been commissioned bringing the power station’s generation to a total 128 megawatts. According to the power supplier, Malawi now has a generation capacity of 351 megawatts against a peak demand of 350 megawatts.
Although the real sector has generally achieved some success, people that will require food assistance between January and March is estimated at 1.9 million, far off from the 100 percent target in the ERP.
Inflation, cashgate
Although the ERP targeted single digit inflation by December 2013, in November 2013 National Statistical Office (NSO) available figures indicate that the consumer price index rose to 22.9 percent—two times above the target. Experts have projected a further rise in inflation due to the current food situation and the depreciating kwacha.
Although the RBM has been implementing a tight monetary policy, inflation has been high in comparison to Malawi’s neighbours. The rising inflation has been blamed in part due to the falling kwacha
To rein in inflation, and control the kwacha the RBM has introduced a number of policies including raising the bank rate to 25 percent and increasing the Liquidity Reserve Requirement (LRR) that has however prompted an increase in interest rates.
Experts have so far argued the central bank is using a wrong approach to rein in inflation.
Chancellor College professor of economics Ben Kaluwa recently argued that RBM’s obsession in controlling money supply is not effective in developing economies where inflation is high.
Kaluwa argued that because the food basket influences inflation in Malawi authorities should focus on producing more food and not controlling money supply.
And recently in the wake of revelations of Capital Hill looting and the consequent donor aid freeze, the RBM said it would tighten its monetary policy.
But the Minister of Economic Planning and Development Ralph Jooma said the implementation of the ERP is on course and has not been derailed by the cashgate.
He argued that to cushion against adverse effects of donor aid freeze, government has modified the budget in a careful manner to avoid affecting substantial ERP projects.
But why have people lost optimism in the ERP, an economic plan which was to bring the economy on track?
MCCCI in its recent statement co-signed by its president Matthews Chikankheni, deputy president Eddie Kaluwa and chief executive Chancellor Kaferapanjira says despite the optimism generated in 2012, the year 2013 turned out to be a year of disappointments characterised by poor economic governance, greed, gross abuse of public resources and lack of direction.
“Unfortunately uncertainty is the enemy of business and therefore no investor with sizeable resources, who does not want to pay bribes, will waste their time considering Malawi as an investment location yet Malawi desperately needs investment to create much needed jobs for its jobless millions,” reads the statement in part.
MCCCI argues that business environment will get worse in early 2014 in light of the 2014 general elections, pointing out that inflation is likely to be out of control when cashgate money starts vote buying, donations and gifts.
