Malawi should stay the course

All Malawians know and feel that the country is going through hard times. In a country where 50 percent of the population lives below the poverty line, economic adversity has profound impacts.

Everyone is now talking about austerity and not just in Malawi; all over the world the global economic crisis has imposed restrictions and one yet has to read a single report of people being happy about this. This puts a lot of responsibility on national politicians to ensure that the right policies are pursued; not just for tomorrow, but also looking ahead at 10 years from now.

When the global crisis evolved in 2008/9, we all were astounded that Malawi was not immediately affected—economists wrote papers about this phenomenon. And we were wrong; tobacco has come down from its peak of $450 million in 2010 to $177 million last year. Banks withdrew about $90 million liquidity from Malawi, when the credit crunch made itself felt. 

When the country started suffering from hard currency shortages, this precipitated a capital flight of unprecedented proportions (although precise figures are hard to come-by).  The somewhat baffled reaction from the then Administration when the economy ground to a resounding halt  was noted by many—everything until late 2010 had looked so healthy, had gone so well and there was so much hope for the future. This reaction, however, precluded an appropriate policy response and it was as though we were waiting for the situation to go back to how it was before, but without taking action. We know where that ended.

We now see more voices becoming critical of the new Administration’s bold steps to stabilize the economy, as well as of the Development Partners for not coming with an immediate “bailout package”. Anger seems to be rising and some quarters have started the usual finger pointing—the latter is not very constructive and raises fears that we may slide back to where the country was only a few months ago; antagonistic relations and no real policy response to economic hardship, while the global crisis was raging around us.

Context matters and experience matters—there are some things any economist who has spent some time in Malawi will tell you;  If the economy is not stabilised now—external imbalances addressed, budget managed and macro-economic balance prioritised—the country will not find the road back to growth any time soon. Bold steps at this stage and staying the course, will allow business confidence to be built back, investment to resume and growth to pick up in a period close to two years.

 Government has had to do what many other Governments in Africa and beyond have had to do—tighten the belt, take the medicine, create conditions for a return to growth and make the country economically healthy again.

Going back to fixed exchange rates as recently suggested(with all due respect to the ones who have been debating this), will simply push back recovery by a few years and  may make it harder and more costly later on to do so. And yet, the impact on poor people is visible to all—the social safety nets that are being expanded and set up with support from most development partners, will never be quick enough and will never reach enough people. This can neither be denied, nor rapidly changed- it is a hard reality.

However, to reverse policy at this moment will not change that dynamic at all and will keep the country in negative economic territory for many years.

The engine of growth is the private sector.  They currently are hesitant to make large investments and boasting employment. After all, they are not altruistic institutions, but hardnosed profit making businesses . The devaluation and other decisions were not really geared to satisfy the IMF and the Word Bank, but to bring back investor and private sector confidence—stability is good for business, while the absence of the “right economic decisions at the right time” will further erode confidence. As business people will tell you, there are many more measures required and the current tendency of overburdening the goose that lays the golden eggs, needs to be reversed to a business and investor climate that is positive and supporting.

What would also help in this scenario, is if “equitable austerity” would be demonstrated—making sure that everyone feels the brunt, not just  a the poor masses. Selling the Mercedeses and smaller delegations to international meetings may not have big economic impact, but would surely show that the Government is in touch with what is happening to the population at large. Fixing accountability institutions is not just a good thing to do to satisfy Donors, but actually makes sense to normal people who would like to see government’s budgets being put to proper use, in an effective and efficient manner.

It is not illogical that when one runs out of money, one turns around to one’s richer cousins and asks for help. This is also what the government of Malawi has done and, contrary to popular perception, development partners have responded. I just need to point at the support for FISP last year, the procurement of a whole year’s worth of medicines, the signature of the MCC grant of $360 million. and the current response to the food crisis that looms in 15 districts.

This was done at a time where most of these countries were facing economic hardship themselves, and surely it can be excuse that they did not manage to bring in large additional flows of funds. They stayed within the money that was already allocated to Malawi, at a time where they were lowering budgets for many a country in Africa, and sought to speed up expenditure to try and soften the blows that the people were feeling.  One would say this is good thing, is it not?

The much lauded IMF Extended Credit Facility (ECF) was brought on with a whopping $80 million and so far all development partners have maintained the schedule for bringing in the funds that were committed at the time. AfDB and WB have released their Direct Budget Support. While Germany, Norway and the UK have not done so (as foreseen), this is not hundreds of millions of dollars that have not arrived before year-end, but tens of millions at best. We also know that meanwhile they are making every effort to bring funds into the country and some are trying to make sure the equivalent of withheld direct budget support will still arrive in-country in one way or the other.  One would say this is a good thing, is it not?

To see the relations between Development Partners and the Government to begin unravel over this issue, when actually everyone is trying to do the right thing, seems to lack logic.  There must be another way. With fear of being seen as too critical, one can put forward some ideas;

1.   Development partners should publicise better what they are actually doing to stabilise Malawi. That will fill a few newspapers quite quickly and most Malawians will feel good again about how they are being supported by their long-term friends.

2.   The government could show more visibly austerity in leadership and build on the enormous capacities available in the current team to showcase the management of  a complex and disadvantageous position, back into growth and well being. There are more than enough examples of other countries having done so, and so far no one has given any reason to assume that Malawi cannot get this done.

3.   Both government and development partners need to set up dialogue mechanisms that allow them to discuss their difference constructively and establish the close contacts and partnership that are required by the challenges Malawi faces.

Malawi has to stay the course —the decisions that the President made with her team soon after assuming power, were the right ones. The instantaneous reaction from the Development Partners to seek and support this, were the right ones. Thus, if everyone stays the course, the job will be done and it will be done well to the benefit of all Malawians.- This is an informal UN discussion paper authored on September 24. The author is UN resident coordinator and UNDP resident representative.