Economists offer Economic revival tips
Economists have advised government to focus on restoring macroeconomic imbalances, fiscal management, particularly in the medium-term, if the country is to revive its economy.
The four—Catholic University economists Gilbert Kachamba, Edward Masoambeta, Hopkins Kawaye and Chitatata Munthali—have given the advice in a paper titled Weather Shocks and Fiscal Slippages: Malawi in Turbulent Seas.
The paper observes that fiscal deficit-government total expenditure exceeding revenue-has resulted in significant increases in the level of domestic borrowing and expenditure, which have damaged Malawi’s economic outlook.
They argue that Malawi has lately faced increased instability in key macroeconomic variables, which has led to a decline in business confidence.
Reads the paper in part: “Projections earlier in the year pointed to a continued recovery in the rate of growth in 2015, building on a solid performance in 2014 and incremental efforts to restore macroeconomic balances.
“However, the full extent of adverse weather conditions has now become apparent, with reductions in the levels of production of both food and non-food crops.”
The paper also noted that weather shocks the country faced last year have had a negative impact on agriculture production, which in turn affected the economy as it relies heavily on agriculture, which accounts for about 30 percent of gross domestic product (GDP).
For the past two years, Malawi’s agricultural output has been adversely affected by bad weather. In 2015, the country suffered from the effects of floods and in the subsequent year, El Nino weather phenomenon also hit the country, creating a huge deficit in crop output.
Due to this, government has been forced to revise downwards the ambitious real gross domestic product (GDP) growth from the initial 5.1 percent announced in the 2016/17 National Budget to 2.9 percent in 2016.
“Malawi’s is still recovering from the 2015/2016 floods, in the southern parts, and drought, in the eastern region. This coupled with food inflation, leaves the country strained economically.
“On top of this the kwacha is still volatile as the currency continues to depreciate at an alarming rate,” reads the paper.
It further outlines the historical trends which show that the frequency of losses in the tobacco and tea subsectors is becoming high, an indication that farmers are exposed to shocks to a greater degree.
Tobacco and tea are also relatively much more significant as export commodities than the other crops; hence, losses in the two sectors may have a multiplier effect on losses in terms of export revenues, depending on the extent of value-added processes between production and export.
But Treasury spokesperson Nations Msowoya in an earlier interview said government has focused on the structural reforms, particularly Public Finance Management Reforms to bring the economy back on track.
He said government has endeavoured to spend within the budget and maintain a tight monetary policy stance.
“We have strived to create a conducive environment and spend within the budget. We have ensured that ministries submit monthly reports as a way of tracking expenditure and respond to pressure for food by mobilising money from within and outside which we used to purchase maize,” he said.
International Monetary Fund (IMF) country representative Jack Ree recently advised Malawi to consider establishing strong macroeconomic targets for end December 2016 and successfully achieve them. n
