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IMF sees economy rebounding in 2014

Oestreicher: Maintain appropriate financial policies agreed under ECF
Oestreicher: Maintain appropriate financial policies agreed under ECF

The International Monetary Fund (IMF) says the Malawi economy has the potential to recover from the negative impact of cashgate—looting of public funds at Capital Hill.

The global lender has also expressed optimism that inflation will decline this year and economic growth is bound to accelerate, if authorities continue implementing appropriate financial policies and maintain the momentum of reforms initiated under the government’s Action Plan.

“The fund’s baseline projection is for continued recovery and stronger growth in 2014,” said IMF country representative for Malawi, Geoffrey Oestreicher, yesterday.

The IMF statement of optimism comes at a time the economy continues to face considerable uncertainty from both external and internal shocks, including the suspension of budget support by major donors, rising interest rates and depreciation of the local currency relative to the dollar, which some economic analysts have feared would dampen high economic growth prospects.

Currently, Malawi’s year-on-year headline inflation, which was decelerating since March 2013, edged up by 0.7 percentage point in October 2013 to settle at 22.9 percent in November 2013, according to the National Statistical Office (NSO).

Commenting on the continued depreciation of the kwacha against major trading currencies, Oestreicher said the weakening of the local unit over the past few months has had some impact on the annual inflation rate and on rising food prices on the market.

He advised Malawi to maintain appropriate financial policies agreed under the IMF programme to reduce inflationary pressure and to reinforce private sector confidence in the sustainability of the recovery.

“Provided government maintained an appropriately tight policy stance, conditions were right for inflation to decline over the months ahead.

“Completion of the IMF programme reviews and continued vigorous implementation of the remedial measures contained in the government’s Action Plan and in the extraordinary policy assessment framework under the Common Approach to Budget Support, is expected to lead to the return of sufficient budget support to fully finance the revised budget for this fiscal year,” he said.

The IMF executive board last Friday concluded the third and fourth reviews under the Extended Credit Facility (ECF)-supported programme, leading to an immediate disbursement of about $20 million (about K9 billion) to Malawi.

Oestreicher noted that this inflow combined with the freeing up of a substantial portion of budget support, will augment foreign currency inflows into the economy, reinforce foreign exchange reserve levels and provide needed reassurance to the private sector that the government’s economic programme is fully financed and realistic.

He said if properly implemented, the measures agreed with government under the three-year programme should provide the foundation for sustainable low inflationary growth into the medium term.

Last year, the economy was projected to grow by 5.5 percent by IMF, but was later revised downward to five percent based on the fund’s survey results as well as revised crop estimates.

In 2012, Malawi’s real gross domestic product (GDP) growth rate was at a tepid 1.8 percent largely due to a slump in agriculture emanating from a weather-related decline in maize production and a halving of the tobacco crop.

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One Comment

  1. These sentiments expressed by the IMF are good for the country in that they help create investor confidence in the economy. The main benefit of such investor confidence is that it helps the Malawi economy to attract investors especially foreign direct investors (FDI) and portfolio investors (to buy Malawi stocks and shares). This private investment triggers capital formation in Malawi contributing to real economic growth.
    The problem with the way donors are “playing God” with the Malawi economy by freezing and unfreezing AID as they see fit, regardless of the consequences, is causing more harm than the help they provide. This comes at the back of what can be summarised as some donors giving bad advice to Malawi on economic growth. Last years aid freeze completely wiped out the little gain poor Malawi made since 2004. Since Aid freeze started the end result are there for all to see based on the World Bank data.

    http://www.indexmundi.com/facts/malawi/gross-fixed-capital-formation

    This loss was entirely due to the IMF /donor aid freeze. $60bn was wiped out Malawi economy steady growth in capital formation due to aid freeze. Aid freeze is justified by donors on the grounds of social issues (corruption, poor governance, democracy, human rights etc) but why use economic solution to fix social mishaps. Here there is need for “segregation of duty” between social and economic issues. Donor policy must never interrupt economic growth because to do so is to deliberately sabotage the economy thereby perpetuating poverty in the country. As a matter of fact the IMF must sign up to guarantee the growth rate they predict and must vow never to interrupt it with freezing aid as they have been doing. Aid freeze must be legislated against at the UN because it does not just damage the politicians but damages everything in its wake, economically.
    Malawians must unite for once to consider these matters of national interest instead of wallowing in party politics which have left the country extremely divided on tribal grounds. That is helping no one. Malawians can only develop as united people not as individual tribes, regions or parties. There will always be wrong doing but they must be solved with solutions fit for purpose, without undermining matters of national significance such as economic growth!

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