The Economic Intelligence Unit says improved macroeconomic stability, aided by a stronger agricultural performance and some donor-funded investment, will spur higher growth this year.
EIU in its first quarter country report released last Thursday has backed Minister of Finance, Economic Planning and Development Goodall Gondwe’s projections during the Mid-Year Budget Review that the economy is turning the corner.
Addressing Parliament in February, Gondwe painted a picture of a Malawi economy on the rebound telling lawmakers that an effective mix of fiscal and monetary policies has put the country’s economy on a firm path to recovery although risks of reverse still remain.
Said Gondwe at the time: “There is evidence that, six months into the implementation of the Budget, the performance of the economy commenced a rebound towards recovery that is reflective of the effectiveness of the fiscal and monetary policies being pursued by the government.
“In particular, during this period, there has been a marked decline in inflation which resulted in a 3 percentage point reduction in the Reserve Bank of Malawi [RBM] policy rate, while the exchange rate has remained relatively stable. The rate of inflation plummeted to 18.2 percent in January-the lowest since May, 2012. Food inflation went down by three percentage points to 21 percent and non food inflation eased to 15 percent from 15.4 percent. This is a significant macroeconomic improvement.”
The finance minister also cited the domestic revenue performance which went up by 5.7 percent during this period as a sign of a turn-around.
Backing Gondwe on Thursday, EIU said after a prolonged period of soaring prices and dismal growth, falling inflation and a stable kwacha, will help spur Malawi economy.
“We share the view that the economy has turned a corner. The kwacha has been fairly stable since mid-2016 (after depreciating by over 50 percent against the dollar over the previous 12 months) and inflation is trending downwards (falling to 18.2 percent in January, its lowest rate since May 2012). Improved macroeconomic stability, aided by a stronger agricultural performance and some donor-funded investment, will spur higher growth in 2017,” reads the report in part.
The economic think-tank warns though, about the pace of recovery.
“We are, however, less confident than the government about the pace of recovery and given the low levels of private investment and continued stagnation in the mineral sector, we think that growth is likely to fall far short of the 6 percent target,” the reports adds.
Reacting to Gondwe’s positive outlook recently, the Malawi Economic Justice Network (Mejn) executive director Daliso Kubalasa cautioned Gondwe, saying the country was still in a tight economic situation and urged Treasury to work out a balancing act that will ensure the poor are cushioned from current shocks.
Agreeing, head of Economics Department at Catholic University, Gilbert Kachamba on Tuesday said government targets to reach single digit inflation look achievable.
“With the bumper harvest ahead of us and if we maintain the current trend as seen in the macroeconomic indicators it is possible to hit single digits. For instance, we have recently seen that the interest rates have gone down,” he said.
According to Kachamba, the country is moving towards the right direction in terms of fiscal discipline.
EIU is a British business within The Economist Group which provides forecasting and advisory services through research and analysis, such as monthly country reports, five-year country economic forecasts, country risk service reports, and industry reports.