The International Monetary Fund (IMF) has cut Malawi’s growth projection for 2022 from three percent to 2.7 percent citing global economic disruptions, largely induced by the Russia-Ukraine war.
In an April 2022 World Economic Outlook published on Tuesday, IMF said while the war in Ukraine has triggered a costly humanitarian crisis, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022.
It said said even as the war reduces growth, it will add to inflation.
In an accompanying statement to the report, IMF economic counsellor and director of research Pierre-Olivier Gourinchas said growth could slow significantly more while inflation could turn out higher than expected if, for instance, sanctions aimed at ending the war extend to an even broader volume of Russian energy and other exports.
He said: “In this difficult and uncertain environment, effective national-level policies and multilateral efforts have an ever more important role in shaping economic outcomes.
“Central banks will need to adjust their monetary stances even more aggressively should medium- or long-term inflation expectations start drifting from central bank targets or core inflation remains persistently elevated.”
At 2.7 percent, the growth projection is 1.4 percentage points below government’s 4.1 percent projection.
The IMF has also projected elevated prices for Malawi during the year, pegging 2022 annial inflation at 10.7 percent, 0.5 percentage points below the 10.4 percent projected by Reserve Bank of Malawi (RBM).
Last week, RBM said the Russia-Ukraine war has jeopardised prospects of the central bank supporting economic recovery, forcing it to revisit the monetary policy stance.
RBM said unless there are interventions to reverse the soaring prices for energy, fertiliser, wheat and other related commodity prices, heightened inflation pressures could persist in 2022.
RBM feared that to net-importing countries, including Malawi, the deteriorating terms of trade emanating from the exogenous global shocks could exert further depreciation pressures to the local currency, thereby fuelling inflation.
Nico Asset Managers recently also observed that Malawi may face faster rising food prices and downward revisions in the economic growth forecast after at least 77 532 hectares of crucial crops were washed away by cyclone Ana and caused damage to infrastructure.
The firms said the destruction of the crops could increase concerns about food insecurity and lower export proceeds in Malawi after late rainfall had already delayed the planting season in a large part of the central and southern region.
Economics Association of Malawi executive director Frank Chikuta told Business Review last week that given recent developments, contractionary monetary policy may be appropriate rein in inflation.
He said: “RBM’s decision to revisit the monetary policy stance is timely and welcome.”