Malawi’s economy improving: Finance Minister says recovery looks promising

Malawi’s Finance Minister Goodall Gondwe says the country’s economy is on the right path to recovery owing to key indicators monitored by government and the donor community.

The Minister made the remarks when he was presenting a mid-year budget review statement in Parliament on Friday.

In his presentation on the part of the economic developments the nation has been into during the first half of the 2016/17 financial year, the Minister said the economy was dominated by effects of the calamitous weather conditions but there have been notable improvements worth calling as signs of turnaround. For example, he said that there has been a noted decline in inflation.

‘’There has been a marked decline in inflation which resulted in a 3 percentage point reduction in the Reserve Bank Policy Rate, while the exchange rate has remained relatively stable. The rate of inflation plummeted to 18.2 percent in January – the lowest since May, 2012. Food inflation went down by 3 percentage points to 21 percent and non-food inflation eased to 15 percent from 15.4 percent. This is a significant macroeconomic improvement,’’ he told the House.

He added: “Another significant indicator of a possible economic turnaround is that capacity utilisation has increased from 57.8 percent to 68.5 percent during the period, suggesting an increase in private sector confidence. Moreover, there has been a robust domestic revenue performance during this period.’’

The Minister told the house that at the moment government is hopeful this agricultural season will be far much better than last year’s owing to the issues of harvests.

“This is the basis for the Government’s projected surge from an economic growth rate of 2.9 percent in 2016 to approximately 6.0 percent in 2017. Therefore, a continuation of the implementation of the sound policies underpinning these gains is key,” he continued in his presentation.

Gondwe has since revealed that government will be receiving budgetary support from the World Bank pegged at US$80 million.

“We also expect the European Union to disburse an amount of more than US$20 million. This will be on top of some budget support that has already been provided by the African Development Bank. We also expect that the IMF will disburse more than US$20 million when they complete their ninth review of the Extended Credit Facility (ECF) within this financial year.’’

He said: “I must emphasise to the house that these are preliminary signs of a rebound, and that the extent to which a real recovery can occur depends on how our agricultural production will turn out to be in the course of 2017. The Government is, therefore, consciously optimistic that an economic recovery could emerge this year. Therefore, a continuation of sound fiscal and monetary policies is crucial.These policies must be anchored by a fiscal consolidation, now that we are discerning positive results of pursuing the sound fiscal policies that the Government has embarked on.’’

Gondwe then urged the lawmakers to give in to the issue of making adjustments to the budget so that there is balance between revenue and expenditure as well as to see to it that domestic borrowing is reduced. He also made mention that the review aims at building an economic environment within which private sector investments can respond to macroeconomic stability that could emerge and be maintained.

The Minister also indicated that the estimated fiscal deficit including grants has been adjusted downwards from K171.2 billion (4 percent of GDP) to K130.3 billion (3 percent of GDP). Excluding grants, the deficit has been revised from K365.9 billion (8.5 percent of GDP) to K289.0 billion (6.7 percent of GDP).

The deficit will be financed by K76.6 billion (1.8 percent of GDP) in foreign borrowing, and K42.3 billion (1.0 percent of GDP) in domestic borrowing.

Parliament had in July last year passed 2016/17 National budget pegged at K1.149 trillion.