The Economist Intelligence Unit (EIU), an influential Britain-based economic think-tank, says the President Joyce Banda administration has been severely bruised and weakened by a large corruption scandal dubbed Cashgate that has seen billions on taxpayers’ money looted.
EIU has said this in a forecast for Malawi ahead of the May 20 Tripartite Elections which it has predicted will be tightly fought.
“Yet, helped by a crackdown on graft, a split opposition, and the benefits of incumbency, we expect Mrs. Banda and her People’s Party to secure another mandate,” said the EIU in a country brief for January 2014.
A recent forensic audit report done by a British firm, Baker Tilly, has revealed that about K13 billion (about $32.5m) has been lost in the worst financial scandal to hit Capital Hill in recent times.
The cashgate compelled the country’s donors under the Common Approach to Budget Support (Cabs) withholding about $150 million in November 2013. The grouping is expected to meet this month to decide on the country’s fate.
The International Monetary Fund (IMF) which withheld its $20 million last year under the three-year Extended Credit Facility (ECF), disbursed the funds in January after a successful third and fourth reviews under the programme.
But the EIU has said a drop in aid inflows will be partly offset by robust agricultural growth and expect real gross domestic product (GDP) growth to pick up to an average of 4.5 percent between 2014 and 2015.
Malawi’s agriculture sector is expected to rebound this year largely due to good rains and the Farm Input Subsidy Programme (Fisp) with preliminary estimates showing that tobacco output will surpass that of last year.
The country is also expected to produce a surplus staple crop, maize.
The sentiments by EIU that the government has been weakened by the cashgate is also in line with what the US government’s Overseas Private Investment Corporation (Opic) president and chief executive officer, Elizabeth Littlefield, said that the the looting of funds at Capital Hills will make it difficult for Malawi to attract foreign investors in the short term.
Malawi is risking being perceived by the international community as a country without proper systems, a development that could deter the inflow of foreign direct investment (FDI).
FDI inflow is critical to creating both direct and indirect jobs and, in turn, contributes substantially to Malawi’s gross domestic product (GDP)—-a market value of all financial goods and services produced in a year—currently estimated at K1.8 trillion.