Something wrong with our national accounts

So the World Bank has confirmed what some of us have been saying all along: the 5.1 percent projected economic growth rate for 2016 that Finance, Economic Planning and Development Minister Goodall Gondwe announced in his budget statement was too optimistic—and possibly cooked up without any effort at real economic modelling.

The Bretton Wood institution now believes that Malawi can only achieve 2.6 percent growth rate this year, much lower than the 3.1 percent the country chalked in 2016. This makes sense to me, especially given that no one in government, not even Gondwe, could show with a straight face where the 5.1 percent expansion in gross domestic product (GDP) would come from.

I mean, this is a country that derives most of its economic growth (at least 30 percent) from agriculture.

Yet, agricultural output is this year taking a severe knock on the back of drought and flood-related climatic conditions that have left at least half the population starving.

In fact, this year’s agriculture underperformance comes on the back of an even sharper decline in production last year whose lagging effects continue to manifest themselves in the macro-economy today.

Food shortages alone, with their inflationary pressures, also greatly contribute to depressed growth.

Then there is the problem of consumer sentiments and confidence. I do not have the figures, but I believe that consumer confidence is at its lowest ebb.

People, hit by rising prices on the back of decreasing real incomes, are reining in on spending.

I should know. I run a small restaurant business at the Catholic University of Malawi  at Nguludi in Chiradzulu. About two or three years ago, students were paying for two meals a day for a whole month in advance.

Today, that number has dwindled by half. Even those who still pay, they mostly do so for one meal a day—just supper. A good number of them no longer pay for a month, opting for every two weeks.

Mind you, this is an observation of the same sample of students over a period. It is not as scientific as I would like it to be, but it is more than an anecdotal even when we consider that students may not be using the restaurant for reasons other than affordability.

The point is that their parents, with their disposable incomes, are finding it harder to ensure that their children have adequate meals every day at the university even as they struggle to raise tuition, maintain households and meet other needs.

Their incomes cannot just keep pace with the rising cost of living. Thus, depressed consumption is greatly pulling down economic growth.

And if one closely looks at sectoral performance, it becomes increasingly clear that there is very little space for the kind of growth the Peter Mutharika administration wants us to believe they can achieve.

Mining growth—once promising—has dwindled to static levels as politics of greed and correctness overtake good policy making.

The manufacturing sector is shrinking, squeezed by high interest rates, an unstable currency, huge transport costs, weak local demand, ever rising utility bills and a generally hostile macroeconomic environment, among other constraints to doing business in the country.

The banking sector—which has for years been the bedrock of stability even as everything in the economy was collapsing around them—is watching its bubble, as they always do, bursting.

Just look at how some of them are closing branches and retrenching. Most importantly, their profit levels are in fact falling. That should tell us something—the financial system is always an economic barometer.

So, yes, the World Bank figures make a lot of sense. Even the Budget and Finance Committee of Parliament, after analysing the budget, had serious reservations about the growth optimism that Gondwe was emitting.

“The committee believes that prospects of the economy in the FY2016/17 will be poor compared to FY2015/2016 since most areas of the country experienced dry spells, floods and early cessation of rain and the nation is looking at food imports to feed eight million people who are food insecure,” said committee chairperson Rhino Chiphiko in his official response to the budget.

He added: “The committee notes with great concern that the performance of many sectors in the economy, in fact more than last year, will be adversely affected by the poor performance of the agricultural sector. Given the economic environment that I just painted, the committee fails to understand how Malawi can rebound and grow above average in the region.”

That brings me to my last point. How is the quality of our national accounts projections? I know that these are estimates, but missing projections by half or several percentage points begs a lot of questions about the credibility of government statistics which most people—including businesses and professional bodies—rely on to make decisions.

Either the levels of skills in economic modelling in government are shabbily low or someone sexes up the figures to look good. Whatever it is, government must fix it so that we have national accounts people can rely on for crucial decision-making. n