After serving as resident representative for three years, International Monetary Fund’s JACK REE ends his tour of duty on August 12. Our Business News Analyst GRACE PHIRI engages him on his work, the economy and aspirations.
How would you describe your three-year stay in Malawi?
It was fruitful. When I first arrived here in August 2016, the first inflation number I received was 24.3 percent. The next thing that I learned was that Malawi’s inflation had actually been stuck at these levels since 2012. Back then, donors were also extremely doubtful about Malawi’s public finance management and kwacha was on a free-fall.
Three years have passed since then. Now inflation is kept in single digits. The government’s consolidated financial accounts are, for the first time, compiled and audited quarterly. Moreover, its cashbooks are also reconciled with the bank statements every quarter—a critical first step for protecting public money against the likes of Cashgate. Despite recent jitters, kwacha remains stable. And growth is coming back.
I am not saying that these were because of me, or the IMF. In fact, all credit should go the authorities and ordinary Malawians—who bore the pains of tight policies. I am just happy and thankful that I happened to be here, during this critical time, to help.
Looking at the economy now, what would you say are the major threats and opportunities that Malawi has to its growth?
Let me start with the positives. 2019 bring a very special macroeconomic window of opportunity to Malawi. Since the transition to the multi-party system, nearly all elections came with renewed waves of inflation due to spending sprees. The waves generally took 3-4 years to tame, and then the next election cycles already kicked in.
Malawi managed to break that cycle this time, with inflation remaining at single digits in an election year—only second time since 1994. We just can’t afford to miss this opportunity. And all we need is to stay the course. Then the single digit inflation will become a new reality. And this will let Malawi to finally shift the gear to growth.
However, staying the course calls for renewed commitment on macroeconomic adjustment, Specifically Malawi needs to bring itself back on a credible path of fiscal consolidation.
The 2018/19 year, was very difficult in view of both the elections and the flood. However, Malawi needs to tighten its budget again beginning from 2019-20. Without this assurance, a small shock can trigger a crisis of confidence and even reverse the course of disinflation.
Budgets have continued to end in deficits, fueled by over expenditure and missed revenue targets. What do you make of this? Are authorities doing enough to ensure fiscal discipline/consolidation?
As I said earlier, we need a renewed focus on fiscal consolidation starting now; even as we take into account the exceptional headwinds [like elections and the flood] that strained the fiscal Management in 2018/19.
Going ahead, fiscal policy should focus more on domestic revenues as the budget needs to play more active roles in catalysing private sector-led growth—including good investments in infrastructures.
These goals require an upgrade of public finance management reform—away from the most basic layers of control [for example, financial reporting and commitment control] to more sophisticated and complex ones [for example a single pipeline of scrutinized projects, and ex-post reviews of key projects].
Public debt has continued to swell, now at K3.3 trillion, a situation which increases interest on loans payments. What do you make of this?
While the external debt has been relatively stable, domestic debt stock rose from 20 to 30 percent of gross domestic product [GDP] during the last two years. Our analysis shows that about 80-90 percent of the recent rise of Malawi’s domestic debt has been caused by deficit financing needs. Consequently, the problem cannot be fixed without fiscal consolidation.
Going forward, we are projecting Malawi’s debt-to-GDP ratio to decrease by about 10 percentage point of GDP within the next 7 to 8 years, provided that the programmed path of fiscal consolidation is adhered to. Indeed, Malawi needs to bring down its overall level of indebtedness. And committing an individual new debt should be done within this aggregate constraint and based on good cost-benefit analyses.
How do you see Malawi economic growth in the short to medium term? Are we on the right footing?
In the medium term, we are projecting economic growth to rise to 6.5 percent. That will depend critically on whether Malawi can lock in macroeconomic stability—therefore winning back investor confidence to unlock private sector growth potential. Yes, Malawi is taking steps in this direction—as indicated by the stability of kwacha and anchoring of inflation expectations.
However, 6.5 percent growth will come only if Malawi maintains the macroeconomic stability; and this is a ‘big if’. Of course, we all dictate our own future. So, I pray and sincerely hope that Malawians will keep doing the right thing. In the short term, as I said, growth is coming back.
If there was one thing that you would wish Malawi could do to turn her economy for the better, what would it be?
Bite the bullet and stay the course of fiscal consolidation. And then invest the public money wisely—to fully get back the value for the money.
Then growth will naturally come given Malawi’s low base of economic development and the scarcity of private capital that promises good returns—once infrastructure and human resourcebottlenecksstart to loosen up.
Finally, are you satisfied with your work having served your three years in Malawi?
Yes. I tell everyone that Malawi was the best thing that ever happened to my professional life. I had the privilege of meeting and making friends with so many amazing people, who taught me to be a better economist and person.
My wife and I had a privilege of donating a borehole to a village in Nathenje and had an opportunity to meet and encourage so many young people, especially volunteers. We had the pleasure of singing intensively in the church choir and give thanks.
Malawi became my second mother country—and I will never forget all the good things this new surrogate mother gave to me. n