The World Bank has projected that Malawi’s economic growth will slow down further to 2.6 percent in 2016 owing to food shortages induced by El Nino which has reduced crop production in most parts of the country.
The projection, contained in the third edition of the Malawi Economic Monitor (MEM) report launched in Lilongwe yesterday, is in sharp contrast to Minister of Finance, Economic Planning and Development Goodall Gondwe’s optimistic forecast of 5.1 percent.
MEM is a report the World Bank publishes every six months reviewing recent economic developments with the aim of fostering better informed policy analysis.
The World Bank has also warned that outcomes of the expenditure controls and improved fiscal and monetary policies which the government is implementing would not have an impact on the short-term economic recovery in 2016 as a result of the El-Nino induced shocks the country is undergoing.
Launching the report titled Absorbing Shocks, Building Resilience, World Bank senior country economist Richard Record said government had done well in tightening expenditure controls and closing the fiscal gaps, but little on resources.
He said: “The 2.6 percent growth projection is on account of low production and contraction on the agricultural GDP [gross domestic product] that was projected before the final round of crop estimates. The country can only get better if there is a coordinated food crisis response that should not exert further pressure on expenditures.”
The World Bank has further observed that as a result of the agricultural shocks the country was experiencing, resources were being taken away from long-term economic growth measures to address immediate term challenges at household level.
Even after the government revised downwards the 2015/16 budget by K23 billion as a result of reduced revenue collection, the benefits would not be reaped in the second half of 2016 unless there are stricter adjustments to the Farm Input Subsidy Programme (Fisp) and the demand for increased salaries by civil servants are not implemented.
Tanzania-based World Bank economist Yutaka Yoshino said Malawi did not have a fiscal buffer and without it there would be poor social protection.
He said Malawi was the hardest hit by El Nino in Southern Africa with household consumption declining by 3.6 percent against 0.3 percent in the region.
Said Yoshino: “This translates to losses to the economy as most resources are going towards coping instead of investing in mitigation mechanisms.”
Centre for Agricultural Research and Development (Card) director of research and outreach Charles Jumbe agreed with the World Bank analysis that an increased wage bill would increase domestic borrowing which would reverse gains made in expenditure controls.
However, the bank has indicated that a recovery to growth would be possible in 2017 if the government continues to control over spending and ministries and departments to their budgets.
Prudent management of the wage bill, reducing domestic borrowing and moving from a predominantly consumption spending in the budget to development would spur growth in 2017.
The World Bank analysis noted that wages and salaries made up 8.9 percent as a share of the GDP followed by goods and services at 7.6 percent then subsidies at 6.9 percent.
Reacting to the World Bank projection, Treasury spokesperson said in an interview government stood by its projection as it had already foreseen the effects of drought and crop production outlook.
He said: “We stand by our projection which is based on rigorous analysis and has been supported by IMF [International Monetary Fund]. We will need to see the World Bank raw data and analysis to either agree or disagree.”
Earlier this month, Malawi Economic Justice Network (Mejn) and Economics Association of Malawi (Ecama) also questioned government’s optimism to achieve a real GDP of 5.1 percent.
Last year, Malawi’s economic growth rate was also revised downwards from six percent to 3.1 percent largely because of adverse weather conditions that reduced harvest by over 30 percent. Malawi is an agro-based economy.