Economic state of emergency

When problems occur in society or country, people start blaming each other. Such problems may take a variety of forms; droughts, pestilences, earthquakes, floods, you name it.

Those who are emotionally charged panic and fume. It is those who analyse the situation calmly that identify causes of the problem. Identifying the causes is the first step to finding a solution.

Why is Malawi in the present situation of fuel and food shortages, galloping inflation and growing unemployment?

To some people, the answer is simple: it is the fault of government. As such, they rage and fume at those who hold top positions in government.

A person with a more relaxed view of the situation would remind us that Malawi has a mixed economy. This is an economy in which both the private and public sectors engage in wealth creation.

Just as when the economy experienced growth both the private and public sectors played their part so are the two answerable when the economy is in recession.

Let us start with examples beyond Africa. In 2007 and 2008, there was a financial meltdown in North America and European Union.

A large number of banks became insolvent because they gave loans to borrowers who failed to repay them.

Many of these people borrowed large sums of money to build houses, offices and factories which they wanted to let out. Saturation took place and the demand for offices, factories and houses fell drastically.

Being unable to recover depositors’ money which they gave out as loans, a situation arose when banks became insolvent and some closed. This was the financial meltdown.

Whose fault was it that the financial system found itself in such a mess? Governments were blamed for having gone too far with deregulation.

Under the influence of economists such as Milton Friedman of Chicago University, governments loosened controls over the economy.

It was preached and believed that when firms were allowed to conduct their businesses without regulations such as price controls (no maximum prices, no minimum wages) they work more efficiently and economies grow faster.

The financial meltdown came about because deregulations had been tantamount to laissez faire.

In Europe, it was said that some of the countries fell into heavy sovereign debts because presidents or prime ministers were subjected to pressure by selfish interest groups.

Farmers, teachers and trade unions forced governments to give them more than what governments collected through taxes.

Governments resorted to borrowing and discovered that their economies were not growing as fast as they would have wanted. As such, they could not yield enough taxes out of which to repay the loans.

Who is to blame for a situation such as this? Perhaps we must blame governments for yielding to unreasonable demands, but must we not also blame the interest groups for pushing governments into the wall?

Now back home, the present situation is not entirely the fault of the Democratic Progress Party (DPP) or the People’s Party (PP) governments.

The aim of the devaluation was to make Malawi’s exports competitive and deter importation of unnecessary imports. Whether devaluation achieves these objectives it all depends on what people do both in the private and business sectors.

The inflation that is raging in the country is a combination of devaluation and cost push. After devaluation employers in various sectors of the economy through strikes and other forms of pressure obtained substantial wages and salary increases.

Employers had to raise prices of their goods and services to find extra money for the payroll. This raising of prices has landed on top of the devaluation price rise. This part is cost push inflation.

Malawi is in an economic state of emergency requiring all its citizens to do what they can to bring the situation under control.

“Ask not what your country can do for you,” said President Kennedy of the United States. “Ask what you can do for your country.”

To political parties and politicians, please see that you do not bring about political instability by reviving the nauseating Section 65 or in case of United Democratic Front (UDF) abandoning the coalition and sitting on the opposition bench.

Donors and investors will bring their money here only if Malawi is seen to be politically safe and stable.