- Economists say Malawians should brace for rough ride
Malawians should brace for hard times in fending for basic goods and services because government’s failure to meet International Monetary Fund (IMF) targets spell doom on the future of the economy, economic analysts have warned.
Speaking in separate interviews on Thursday, the analysts said they foresee that if the economic situation remains unchanged, most Malawians will not afford to purchase basic items by December 2015.
Their views come in light of the tough economic environment characterised by skyrocketing inflation rate at 22.2 percent, high interest rates in commercial banks hovering between 32 and 37 percent as well as a paltry gross domestic product (GDP) growth of three percent in 2015, a downward revision from a rate of about six percent.
The analysts’ sentiment also came barely 24 hours after IMF painted a gloomy picture on the future of the economy punctuated by a looming food crisis estimated to affect 2.8 million people and weak private sector investment as well as a slowdown in household consumption.
Growth in credit to private sector also remains negative in real terms in the face of ongoing economic uncertainty and tight lending conditions by commercial banks.
Giving his assessment, Centre for Social Concern (CfSC) economic governance expert Mathias Kafunda said the urban population, which largely depends on commercial goods and services, will be severely affected in the short to medium-term.
He said: “If inflation continues to increase at an increasing rate, then the situation will negatively impact on the pockets of the urban poor whose income remain static.”
Inflation—the rate at which prices of goods and services change—has been stubbornly high above 20 percent since mid-2012 despite authorities’ efforts to bring the rate to single digits.
Prices of basic goods such as cooking oil, sugar and maize, among others, have jumped up to the sky in recent months mainly on account of a weakening of the local currency beginning end June this year as importers and traders are passing on the high cost of importing to consumers.
Kafunda’s views were shared by Malawi Congress Party (MCP) spokesperson on finance and economic issues, Alexander Kusamba-Dzonzi, who said the future for ordinary Malawians is bleak in light of the tough macroeconomic environment.
Another economic analyst, Collen Kalua, blamed government over expenditure for triggering most economic woes facing Malawi.
Kalua reasoned that government overspending has essentially piled up inflationary pressure on the market. He projected that come December “most poor Malawians would not afford to buy even a packet of sugar if the economic situation remains as it is.”
According to the recent IMF assessment on the progress of the fund’s supported programme, the Extended Credit Facility (ECF), the Malawi economy is facing difficult challenges due to weather-related shocks.
Minister of Finance, Economic Planning and Development Goodall Gondwe also admits that the economy is currently in ‘critical situation’ but assured the IMF on Wednesday that government is geared to improve business environment and the macroeconomic situation in general.
He said: “We are at a critical point as far as the economy is concerned. We are under a difficult situation but I am absolutely confident that at the end we will end up with a robust and positive growth.
“Most of our neighbours such as Mozambique, Zambia and Tanzania have passed through the same phases.”
IMF mission chief for Malawi, Oral Williams, said during a news conference in Lilongwe on Wednesday that restoring macroeconomic stability by bringing inflation down to single digit remains a key precondition to fostering and sustaining growth in the near to medium-term.
Economics professor Ben Kaluwa feels the current economic situation, as assessed by the IMF, will culminate into worsening donors’ confidence and further frustrate both foreign and local investors as there is a gloomy economic outlook.
Currently, donors—who withdrew their 40 percent contribution to the recurrent budget in October 2013 amid concerns of Cashgate, the plunder of public funds at Capital Hill—have not yet unlocked their budget support to Malawi and have opted to finance through off-budget support.
Kalua, who is based at the University of Malawi’s Chancellor College in Zomba, feared that the situation will likely lead to rising lending rates in banks hence denying businesses the much-needed capital to expand their business ventures.
“Malawi has well-trained economists, but government has not allowed them to do their professional work. On varied reasons, government has tended to disregard the advice of economists; and this is the major challenge and stumbling to the growth of our economy,” he said when asked to suggest solutions to the economic woes gripping Malawi.