UK ready to save Malawi

As the Malawi economy appears to head into recession, British High Commissioner  Michael Nevin says London is ready to support Lilongwe to pull itself from the brink.

In an exclusive interview at his residence in Lilongwe last week, Nevin said: “Britain will be ready to respond if that fragile economic position sees Malawi tipping back into dangerous territory. We will be ready to help stabilise the economy if that happened.”

Nevin said while the Joyce Banda administration seems on track in implementing the national budget, there are key assumptions that have veered off the authorities’ projections.

Said the envoy: “Obviously, we [Britain] think that government is doing the right thing. For example, in the budget, they are sticking to their promises and commitments even though it is difficult.

“I would say that probably some of the assumptions made in June have not materialised and the obvious ones are tobacco receipts, inflation is probably a bit higher than we thought…Overall, it’s more or less what you would expect.”

Major economic indicators paint a gloomy short to medium-term outlook.

Economic challenges

Authorities have sharply cut economic growth projections as measured by gross domestic product (GDP), sparking fears that Malawi may be sliding into recession.

Two weeks ago, the Ministry of Finance announced the second downward revision in one month of the 2012 GDP to a tepid 1.4 percent, although the IMF on Thursday put growth projection at 1.9 percent. This came a month after the Reserve Bank of Malawi (RBM) also cut the official GDP estimate from 4.3 to 1.6 percent.

As GDP slows on the back of an austerity budget, inflation is breaking loose and eroding consumers’ disposable incomes.

The loss in purchasing power has further undermined growth prospects as demand for goods and services fall, thereby hitting businesses.

Soaring food and energy prices have in recent months pushed inflation to 28.3 percent—far higher than the 18 percent average forecast for 2012.

Inflation figures that the National Statistical Office (NSO) released last month show that the general rise in prices hit the seven-year high of 28.3 percent in September, 2.8 percentage points above the 25.5 percent recorded in August.

But also gaining rare influence in the consumer price index (CPI) is core inflation—which takes out food and energy because of their volatility.

Core inflation has in recent months recorded double digit increases, which points to a troubling long-term inflation outlook rather than just the pass-through effects of higher food and energy costs.

In September, food inflation jumped 27.7 percent compared to 2.7 percent during the same period last year.

During the same month, core inflation rose 28.8 percent compared to 12.5 percent during the same period last year.

Tobacco earnings—which wire in about 60 percent of the country’s foreign currency—have fallen in recent years from $416 million in 2010 to $292 million in 2011 and $177 million this year.

The 2012 proceeds are the lowest in a decade, according to Tobacco Control Commission (TCC) data that The Nation has reviewed.

This has left Malawi at crossroads: The country now needs more donor aid at a time donors are implementing tough budget cuts in their own countries as a result of a sluggish global economy.

In an interview on Monday, Finance Minister Dr. Ken Lipenga said it is reassuring to know that Britain is ready to support “if we continue on the right path.”

Said Lipenga: “Even in the worst of times, when our relationship with Britain was bad, the British still remained on our side and supported other sectors. I can testify that even when they withheld budget support, they still provided us with sectoral support and they were the first to come to our rescue when we passed the budget and devalued the kwacha.”

‘Economy will stabilise’

But the minister remained optimistic that the economy will stabilise in the coming months unless the current reconstruction policies are abandoned.

“It’s true that some things are beyond our control such as the price of fuel, but what we are trying to do is to look at the real cost of fuel and not use fictitious figures like in the past that resulted in huge debts,” he said.

Britain, traditionally Malawi’s largest bilateral donor with an estimated £20 million (about K11 billion) in budget support, has in the past urged the Joyce Banda administration to demonstrate strong, credible and sustainable governance credentials for Britain to unlock budget support.

JB cautioned

During the interview, Nevin also cautioned government on arbitrary arrests and search warrants, saying they need to be reviewed to comply with international practice. He also expressed concern about what he called “the apparent lack of independence of the police”.

“I think one of the most disturbing things coming out of the Chasowa inquiry is the apparent lack of independence of the police,” he said.

Robert Chasowa, a student activist, was found dead at Polytechnic campus in Blantyre last year. Police tried to cover up the murder, arguing it was suicide.