Malawi’s Finance Minister Ken Lipenga on Monday said the 2013/14 budget will focus on consolidating the reforms government instituted in the current financial year.
He said this at the first pre-budget consultation meeting the ministry officials conducted with representatives of the business community in the commercial city of Blantyre that included the Society of Accountants in Malawi (Socam) and the Malawi Confederation of Chambers of Commerce and Industry (MCCCI).
Lipenga said there is need for Malawians not to lose sight of what the reforms, among others, the 49 percent devaluation of the kwacha and the adoption of a market-determined exchange rate have achieved.
“Sustaining market-based reforms has helped to restore both investor and donor confidence in our economic policy stance. Confidence is not easily restored once it is eroded,” he said.
The minister cited, as some achievements of the reforms, the elimination of fuel shortages and fuel queues, except for the occasional logistical hiccup.
Lipenga touted the reforms for the shrinking of the black market premium to five percent from over 80 percent, stressing that the near elimination of the foreign exchange black market is without doubt one of the most enduring reforms.
He cited the restoration of sizeable donor flows that have facilitated a sizable scaling up of social spending by up to five percentage points of the gross domestic product (GDP), increased availability of some international credit lines, which has largely benefited the private sector by facilitating the purchase of imported inputs, especially fuel and fertiliser and a sizeable pick-up in industrial capacity utilisation due to the increased availability of fuel, foreign exchange and essential inputs.
But the very same reforms have also brought misery onto Malawians resulting in rising cost of living as a consequence of rising inflation and interest rate making borrowing for the private sector, the engine of economic growth, expensive.
Looking into the future, Lipenga said “already, we are seeing that maize prices in some markets in the South are up to 50 percent lower than before. This bodes well for bringing food inflation under control,” he said that preliminary crop estimates suggest that the surplus of maize and various cash crops will be significantly higher than last year owing in part to good rainfall.
A surplus crop output will be good for Malawi because it means a reduction in the inflation rate currently at 37.9 percent since food takes up a huge chunk at 50.2 percent in the Consumer Price Index (CPI)—a measure that examines the weighted average of prices of a basket of consumer goods and services.
But Lipenga cautioned that the speed with which the exchange rate and price stabilisation can be achieved will also depend on the public’s tolerance for austerity measures.
A bulk of Malawi’s budget is dedicated to social spending hence “definite limits to which the budget can be compressed”.
He explained: “and, in fact ,in the current fiscal year, sizeable donor flows make it feasible for total spending to actually rise as a percentage of GDP rather than falling, with the increase mostly devoted to higher social spending, “explained.