Despite a fairly good macroeconomic outlook, the economy is still under internal and external pressure and may take time to fully recover, economic analysts and market watchers have said.
Their comments are based on the economy’s outlook in view of the implementation of the 2016/17 National Budget for the past six months.
According to Minister of Finance, Economic Planning and Development Goodall Gondwe, the budget was prepared at a time “significant progress was being registered towards strengthening the public finance management system”.
The budget was prepared against the backdrop of myriad socioeconomic pressures such as food insecurity crisis occasioned by the El Nino climatic occurrence the country faced the past two years.
At the time of budget presentation, the country was facing considerable resource constraints due to continued freeze in budget support, which made up about 40 percent of the total budget.
Despite the ever-increasing demands for delivery of critical public goods and services, there was continued decline in collection of tax and non-tax revenue.
The policy that underpinned the current budget, according to Gondwe, was to address short to medium-term challenges the country faced due to climate change and not about ensuring that there is continuous funding to ministries, departments and agencies (MDAs).
Prior to the budget being presented in June, Malawi Revenue Authority (MRA) was perpetually missing its monthly revenue targets.
The current budget has projected to collect K708 billion in tax revenue, but half way through, MRA has collected K377 billion against the target of K339 billion, which is 53 percent of the total collection.
In June 2016, the rate of inflation—a general increase in prices and fall in the purchasing value of money—closed at 20 percent at the end of the year in December from 23 percent in July.
National Statistical Office (NSO) has attributed the drop in inflation to overall drop in food inflation which was at around 26 percent in July and has dropped to 24.4 percent in December.
At an average of 35 percent, commercial bank interest rates have remained high despite government revising the policy rate or the bank rate downwards by three percentage points to 24 percent from 27 percent in November.
When presenting the budget, Gondwe envisaged the economy will rebound from a real gross domestic product (GDP) growth rate of 3.1 percent in 2016 to 5.1 percent at the end of the fiscal year in June.
However, the growth rate has been revised downwards to around 2.8 percent largely due to subdued performance of the agriculture sector.
Data sourced from the Reserve Bank of Malawi (RBM) shows in the first month (July) of the first quarter, it recorded a surplus of K15 billion, but later recorded deficits of K34 billion and K23 billion in the subsequent two months. n