Economy in focus ahead of elections

Elections in less than three months is a distraction for any economy. But as Malawi gears up for the May 21 vote, onlookers are positive about the country’s economic fundamentals.

With both local and international monetary authorities warning government on expenditure ahead of the polls, there is a general consensus that the economy remains on a strong path with growth projected at around 4.5 percent this year.

In fact, Reserve Bank of Malawi (RBM) Governor Dalitso Kabambe was firm in his statement of the first Monetary Policy Committee, stating: “The favourable weather conditions experienced so far point to higher agricultural output than earlier projected. This is expected to reduce food inflation significantly.

Malawi is agro-based economy and maize is a key driver of inflation. With maize expected to be produced in abundance, RBM can only see inflation slowing down.

“Inflation is now projected to average 8.5 percent in 2019, from an earlier projection of 10.1 percent,” said Kabambe. “Inflation expectations are likely to moderate on account of earlier than expected December 2018 downturn in inflation as well as favourable prospects for macroeconomic outturn.”

RBM expects real gross domestic product (GDP) growth for 2019 to increase to an average of 4.5 percent from about 3.4 percent in 2018, a threshold which economists also believe impacts meaningfully on poverty reduction in the election year.

To reach this point, it has been a long journey. By January 2017, it was apparent that most macroeconomic indicators were pointing to stability and the situation has remained the same to date.

Inflation and interest rates have subsided although Treasury is still grappling with a huge amount of private sector arrears and public debt, among other hurdles in its path.

At 9.9 percent, inflation rate is relatively fair and consumers are paying a price for more goods as their disposable income can allow than was the case in December 2017.

On the other hand, nominal exchange rate continues to be stable. The local unit, kwacha, has been trading at K735 per dollar at the end of December 2018—broadly unchanged since mid-2016.

The stability of the kwacha is expected to continue on the back of adequate foreign exchange reserves which at the end of December 2018 stood at 3.61 months of imports, data from RBM show.

Meanwhile, the central bank has also announced new monetary policy decisions which have pushed the policy rate from 16 percent to 14.5 percent and Lombard Rate from 200 basis points to 40 basis points above the policy rate to 14.9 percent, a move economists argue will spur economic growth.

Finance, Economic Planning and Development Minister Goodall Gondwe though still haunted by the some economic challenges that have gripped the economy such as public debt, remains positive.

Key to maintaining the growth path is to rein in on expenditure to keep the national budget in check, Gondwe told Business News.

He explained: “Government is cautiously working towards ensuring that it manages the economy well and [we] will spend as the budget allows us to spend and continue to rein the macroeconomic gains.”

Economist and The Nation columnist Alick Nyasulu agrees that outlook for the country’s economy is good.

However, Nyasulu cautioned that on the monetary front, the RBM governor has taken a liberal and realistic approach in how monetary policy works in a country whose financial sector is not advanced.

On his part, University of Malawi (Unima) economics professor Ben Kaluwa on Tuesday said government has demonstrated efforts to stabilise the economy by taming interest and inflation rates.

Going forward, economic commentators, including representatives from the donor community are of the view that government needs not to relax, but remain aggressive for authorities to maintain recent momentum in safeguarding and strengthening gains in the economy if the country is to unlock growth.

Recently, the International Monetary Fund (IMF) country representative Jack Ree pointed out to authorities that the macroeconomic window of opportunity is here with single digit inflation and stable external positions for the country to stay the course by keeping focus on budget discipline and continue fighting battles on public finance management reforms.