Experts question GDP projection

Economic experts have questioned the country’s gross domestic product (GDP) projected growth of 3.8 percent, saying it is a tall order to achieve in the state the economy is.

In  his national address on Sunday, President Lazarus Chakwera projected Malawi’s economy in 2021/22 to grow by that margin, while the Minister of Finance Felix Mlusu in his revised K2.3 trillion National Budget puts growth rate of 3.5 percent from last year’s 0.9 percent.

The inconsistencies in GDP projection according to experts, makes it hard for planning.

The confusion in growth rate projections also comes as the World Bank, African Development Bank (AfDB) and International Monetary Fund (IMF), among others, projected low GDP growth rates for Malawi in 2021 owing to the Covid-19 pandemic.

The World Bank projected 2.8 percent growth; AfDB projected 3.3 percent while the IMF projected a 2.2 percent growth.

In his address, Chakwera said Malawi’s economic outlook for 2021 remains positive with a GDP growth rate of 3.8 percent owing to anticipated bumper yield due to good weather conditions and the Affordable Input Programme (AIP)

He explained that although headline inflation recorded an uptick to 8.3 percent last month, which is consistent with the nature of the transition the country is in, it remains within the desired trajectory towards achieving a medium to long term inflation target of 5 percent.

He said: “Even with respect to the exchange rate, I can assure you that the depreciation pressures it has experienced over the past few months are temporary.

“This is because we expect the supply of foreign exchange in this country to soon be bolstered by the commencement of the agriculture marketing season for our export crops, including tobacco and soya beans”.

However, in a written response yesterday to clarify the GDP revision, Ministry of Finance spokesperson Williams Banda said growth figures usually get revised periodically depending on the economic activities from surveys and new information.

He explained that the committee that deals with projections on GDP had recently revised the growth rate from 3.5 to 3.8 percent; hence, the pronouncements in the President’s speech.

Banda said: “This is on account of the successful roll out of the vaccine as economic activities are expected to boost. Recently international news all over the world and Malawi as well the vaccine is having a positive impact on the economic outlook.

“Malawi like any other country comes up with its own budget framework and assumptions for the budget therefore trust your country’s figures and not any foreign figures. This is like your house or your account at the bank, as an individual you know your position better than anyone else”.

He clarified that projections on GDP uses raw data from the economy and that the review happened after the first announcement (in the revised budget) hence the revision from 3.5 percent to 3.8 percent.

But the Budget and Finance Committee of Parliament chairperson Gladys Ganda said yesterday that she was not surprised with the confusion.

She said government is working against realities on the ground.

“Despite the fact that we have good rains in most parts of the country, the dry spell and the reported fall armyworm destruction of more than 860 000 hectares of the maize crop in some parts of the country coupled with the continued surge in Covid-19 puts this estimate in big doubt.

“It is noteworthy that both the IMF and World Bank also agree with us as their forecasts and projections are much lower than the government’s overly optimistic projections,” Ganda said.

Chancellor college based economist Gowokani Chijere-Chirwa said the confusion is not surprising because of the unpredictable nature of the Covid-19.

He noted that everyone (government and multilateral lenders) is using different parameters in their models to probably say something about the future which essentially, means all of them are not sure and one may think it is mere guess work.

He explained that economic models are yet to find ways to encompass the virus transmission mechanism in the economy.

“Such disparities are going to make business planning difficult. Investors want an environment that they can be sure of the outcome.

“Since economics is built on expectation, if the authorities we look up to are offering different directions, people will fail to plan. It will be difficult for producers to plan based on which growth rate. It will stall business, surely,” Chijere-Chirwa said.