World Bank brands Malawi economy unstable
The World Bank on Monday said Malawi’s economy is currently characterised by macroeconomic instability and barriers to trade which government needs to act on to improve growth prospects.
In this regard, the Bretton Woods institution has cut Malawi’s economic growth prospects for 2015 as measured by real gross domestic product (GDP).
The bank now projects that the domestic economy would slowdown to 5.1 percent mainly due to adverse weather, which is likely to affect agricultural production and subsequent manufacturing.
Last year, the economy grew by 5.7 percent, a rate which the bank’s senior country economist for Malawi Richard Record described as stable.
Record was speaking at the World Bank offices in Lilongwe during the launch of the bank’s bi-annual publication called Africa’s Pulse and the global multi-lateral lender’s maiden Malawi Economic Monitor, a new report analysing the country’s economic development.
Quoting the Malawi Economic Monitor, Record said: “Malawi’s budget position is under pressure with the country expected to run a deficit of 5.9 percent of GDP during the 2014/15 fiscal year, compounded by the loss of budget support from donors.”
In recent fiscal years, Malawi’s fiscal deficit as a percentage of GDP has been around 1.5 percent.
Malawi is still reeling from the suspension of budget aid by its major donors who unanimously suspended their support in November 2013 following revelations of abuse of taxpayers’ money at Capital Hill dubbed Cashgate.
The donors, sitting then under the now defunct harmonised platform called Common Approach to Budget Support (Cabs), withheld resources worth $150 million (over K65 billion).
Record explained that public debt has also risen sharply in recent years, with annual debt service costs now being valued at the equivalent of 5.3 percent of GDP.
He said: “With these significant challenges, Malawi needs to prioritise the restoration of macroeconomic stability through such actions as reducing the size of the budget deficit, scaling back domestic borrowing, and reforming key subsidy programmes, particularly the fertiliser input subsidy.”
Record further cited continued high rate of inflation—which averaged 23.8 percent in 2014, lending rates of around 40 percent and a weak fiscal environment as key economic downside risks to growth for Malawi.
Ministry of Finance spokesperson Nations Msowoya yesterday declined to comment more on the World Bank’s position on the state of economy and briefly said: “We are already implementing a zero-aid budget which has not counted on budget support from donors; hence, such a budget deficit.”
Head of Economics at Catholic University of Malawi, Gilbert Kachamba, yesterday agreed with the World Bank analysis of Malawi, citing numerous trade barriers in the country as manifested in the poor ranking in the ease of doing business index by the World Bank.
Said Kachamba: “Even the tax itself when one is importing things from outside is very high and because we are doing badly in the area of trade, we are having problems in our balance of payments position. In addition, our market access outside is also very poor.”
The World Bank’s assessment is coming barely weeks after the International Monetary Fund (IMF) approved disbursement of $18 million in aid, which—according to investment and economic analysts at Nico Asset Managers—has helped to increase foreign exchange reserves, provide support for the currency’s value and ease the government deficit, albeit not to previous levels.
