Malawi expects to see its GDP to grow by 4.3 percent this year and 5.7 percent next year while inflation will remain in double digits largely due to a recent devaluation of theÂ kwacha, Finance Minister Dr Ken Lipenga told Parliament on Friday.
â€œInflationary pressures in 2012 continued to rise, reflecting a loose fiscal and monetary stance. Coupled with the pass through from currency adjustments, we now estimate inflation in 2012 at 18.4 percent with the prospects of decelerating to 16.1 percent in 2013…,â€ he said.
Malawiâ€™s economy had been in a tailspin for about a year after former president Bingu wa Mutharika picked a fight with major donors and in the process creating a $121 million budget hole in the 2011/12 fiscal year.
But the Joyce Banda administration has worked to restore aid inflows with Lipenga, saying that grants for the 2012/13 budget have increased by 140 percent compared to the previous year.
â€œGrants from cooperating partners have increased by 140 percent reflecting renewed confidence in the new government of President Joyce Banda who within a short time of assumption of power has not only said the right things but also done the right things,â€ he said.
Last year, the donors had committed K52.68 billion (about $210 million).
He projected total revenues and grants for 2012/13 at K394.47 billion ($1.6 billion) up from the revised K307 billion ($1.3 billion).
â€œThe key objective of this budget is to restore macro-economic balance and a market-based economy that will provide a foundation for sustainable economic growth in future,â€ he said.
He announced new austerity measures such as reducing both international and local travel,Â the size of government delegations going abroad and reviewing allowances for public servants.
â€œTo achieve the above objections, it is imperative that there be enhanced control of government expenditure, any additional expenditure over and above the approved budget must be matched by a corresponding cut elsewhere in the budget,â€ he said.
To encourage investment, the minister announced the removal of capital gains tax on sale of shares that are held for more than one year. He also reduced investment allowance from 100 percent to 40 percent on new and unused buildings, and plant and machinery.