Malawi’s economy is set to expand by a six to seven percent range in the medium-term despite the threat of coronavirus disease (Covid-19), the International Monetary Fund (IMF) has said.
But the fund has made it clear that the risk of a “deeper disruption” to the country’s economic activity remains elevated owing to spillover effects of the pandemic.
Recent strong agricultural harvests and reconstruction activity after Cyclone Idai have boosted Malawi’s economic growth, but IMF warned that the growth path for the remainder of the year will depend on the extent of transmission to Malawi of Covid -19 and the magnitude of associated global and regional economic spillovers.
In a statement outlining the outcome of a fourth review of the three-year Extended Credit Facility (ECF) arrangement for Malawi, the fund said in the medium-term growth should be underpinned by infrastructure that is more resilient to shocks from climate change, improved access to finance, crop diversification, and an improved business climate.
But the projected medium-term economic growth projection by the institution is way above a 5.1 percent growth which authorities are anticipating achieving this year.
While commending authorities for regaining control over the budget in the first half of the financial year 2019/20, the IMF has urged authorities to maintain such performance for the second half of the fiscal year will be challenging.
By December 2019, total expenditure outturn in the 2019/20 budget was K780 billion, representing an under-spending amounting to K62.8 billion compared to its half year target, thanks to Treasury’s efforts to spend within available resources.
IMF Mission Chief for Malawi Pritha Mitra whose team was in the country between March 10 and 23 2020 noted that pressures from Covid -19 and political uncertainties ahead of the fresh presidential elections are weighing on government revenues.
“At the same time, expenditures have appropriately been increased to cover the cost of the upcoming election and to finance urgent healthcare preparations consistent with the government’s Covid -19 contingency plans developed with support from the WHO [World Health Organisation] and other development partners,” said Mitra in the
Agreeing with the IMF latest economic analysis on the economy, Treasury spokesperson Davis Sado on Wednesday said it will be inevitable for Treasury to accommodate expenditure on fresh elections and coronavirus related expenditure, stressing that Capital Hill is committed to prudently spend the resources within its means.
Said Sado: “As observed by the IMF, most of the areas that they have raised are our main areas of focus, mindful of the fact that most of them are obligatory in nature like the fresh election which emanates from the recent court ruling.
“But also, coronavirus expenditure is also obligatory and is a matter of national interest. So, we remain committed to addressing such issues.”
Economics Association of Malawi (Ecama) executive director Kettie Nyasulu on Wednesday said the IMF statement has largely provided confidence in the capacity of managing Malawi’s economy by authorities, but she noted that the virus has proven to be a down risk to economic growth as recent spillover effects from countries such as South Africa will likely affect Malawi.
Said Nyasulu: “Thus, the average growth in medium-term of six to seven percent may prove to be difficult to attain considering the current business climate.”
However, going forward, IMF has advised authorities to continue implementing large-scale infrastructure projects while preserving debt sustainability, improve public investment management, oversight and monitoring of State-owned enterprises and other parastatals as well as increasing access to finance by addressing structural barriers, such as challenges with the collateral registry, mobile banking, and property rights.
Centre for Research and Consultancy director Milward Tobias on Wednesday also concurred with the IMF analysis, but said in the wake of the virus, fiscal management will be heavily affected.
With the virus still taking its toll on the global economy, most trade experts and also regional bodies have already warned that commodity dependent countries such as Malawi will have to brace for tough times as demand for exports globally is poised to falter, rendering a weak demand for exports.
At stake are some of the major export crops such as sugar, tobacco and legumes which usually fetch huge demand in Europe, China and the US, where the virus has already wreaked a serious havoc. n