Honourable Folks, I have never doubted the necessity of devaluation and floatation of the kwacha. Not because these are the best options we had to turn around our economy, but because this was the only way to get back to the good books of IMF.
The problem we had when Bingu wa Mutharika’s zero-deficit budget hit the rock was that we faced a balance of payment tragedy of Titanic proportions. We needed fertiliser, drugs, fuel, spare parts, raw materials and the many other goods and yet there was not a cent in the coffers to pay for the imports.
The crisis also had a ripple effect on domestic revenue. Harder though it tried, the Malawi Revenue Authority simply failed to squeeze enough revenue from an ailing economy. The deficit was in billions—apparently a politically embarrassing fact which was a guarded secret until the demise of our stubborn former president.
Our survival depended on being reconnected to IMF’s life support machine. Unfortunately, IMF could not accept our offer of phased devaluation. The price for its life support service was 49 percent devaluation at once coupled with the floatation of the kwacha.
Our team of negotiators was told point blank that so damaged was the donor partners’ confidence in our economy that piece-meal reforms wouldn’t bring them back. The logic of the huge devaluation and floatation that JB implemented on assuming office is that the alternative was total collapse of our economy.
The President acted wisely by choosing devaluation and floatation. Any political charlatan who wants to make rising cost of goods and services a campaign issue as May 2014 approaches should come up with whatever better alternatives there were. Otherwise, Malawian voters are smarter and may just kick such a fool in the teeth on Election Day. Don’t say you weren’t warned!
But being in IMF’s good books doesn’t mean economic recovery in 18 months or any given period. Massive aid hasn’t helped Greece recover in 18 months, not even in 36 months. Government and donors should, therefore, stop creating false hopes with empty propaganda.
What the people should be told is that now that we have complied with IMF dictates, donor aid is back on course and forex is not as hard to get as was the case when Mutharika led us down the pariah path in the name of protecting our sovereignty.
But aid alone will not lead us to economic recovery. It simply does not work that way. What aid does is to act as a booster to the endogenous capacity of an economy to take off. This capacity was there between 2005 and 2011 when the economy was growing by 7.5 percent on average.
The Mutharika administration damaged it greatly between 2011 and 2012. Unfortunately, the JB administration started on a wrong note by opting for a government that was much larger than the economy. The folks in government were simply living in denial of the fact that Malawi was so broke it could run Mercs and finance first class tickets for Cabinet ministers.
Now, with growing pressure from the civil society and a lot of bashing from the media, JB has implemented some cost-cutting measures. Her convoy is now smaller and she is more at home than flying to foreign capitals with chiefs and party loyalists as it used to be the case.
But unless these measures are taken as part of a comprehensive reform programme that includes cracking down on rampant corruption in the public sector, streamlining bureaucracy and awarding government jobs and contracts on merit, it will take years for the economy to grow even with donor aid and an Economic Recovery Plan.
In fact, we are standing on quick sand and while the talk is of economic growth plan, if our actions do not match with what we claim, it is also possible that the economy can trip again instead of growing.
I am told that for our population, among the fastest growing on the continent, any economic growth of less than 6 percent simply means sharing poverty.
Achieving a 6 percent growth rate is not an impossible feat. Other developing countries such as China require much higher economic growth rates for the standards of living of their people to continue improving. What is urgently needed is the political will to continue doing the right thing.