Authorities weigh in on economic growth

Economic think tanks are projecting the Malawi economy to grow between five and 5.5 percent in 2018 riding on the back of continued availability of food and prudent fiscal expenditure, among other factors.

The International Monetary Fund (IMF) has put growth in Gross Domestic Product at five percent this year but has said the figure may change after periodic statutory consultations with member countries, a process that is expected to start next week.

Investment and portfolio management company, Alliance Capital Limited has given a cautious estimate of five percent, indicating that risks to growth still remain and these include weak tobacco prices, unfavourable climatic conditions and uncertainty over external donor inflows.

The year 2017 was historic for the Malawi economy with most key fundamentals maintaining a positive trajectory and this has largely been attributed to a bumper harvest in the year.

Some of the economic milestones include inflation hitting single digit, the kwacha maintaining a steady stance against the green buck, softer lending rates and a sound forex reserves position with the import cover averaging above three months.

However, there have been concerns that the gains may be eroded this year following the dry spell that has hit some parts of the country.

IMF Resident Representative to Malawi, Jack Ree, has said authorities need to focus on keeping inflation in check, should the dry conditions persist.

In his observations, Ree said if a dry spell persists; the country may have to forego some of its growth expectations.

“I cannot predict what the nature would provide us this year. Unfortunately, droughts and floods are risks that we need to live with, at least for now.

“Our focus, in my view, should be on inflation in such a case, given the need to avert sliding back to a deadly trap of economic instability that we just escaped,” he said.

Looking ahead, Ree said 2018 is a macroeconomic window of opportunity for Malawi to redefine its economic fortunes by opening a new trend of robust growth and low inflation.

“However, we should caution ourselves against complacency. We don’t want to drop the ball this time,” he said.

In its Annual Economic Report for 2017, Alliance Capital notes that acceleration in economic activity would have been more pronounced, if it were not for the widespread utility shortages that gravely affected manufacturing activity, especially in the second half of the year.

The firm says aggregate supply conditions lost their thrust because of this and observes that power shortages still remain an area of serious concern.

Looking ahead, Alliance Capital expects investment activities to pick up further and inflation to average nine percent.

“Since we expect tight monetary stance to continue, we therefore, expect the benchmark interest rate, the policy rate, to remain at 16 percent at least for the first quarter of 2018 with a possible cut at the second Monetary Policy Committee meeting for 2018.

“The money market rates, especially overnight lending rates, are expected to remain elevated as tight liquid conditions continue in the market on account of Reserve Bank’s open market operations,” the report reads in part.

In a separate interview, Spokesperson in the Ministry of Finance, Davis Sado, said the ministry is expected to conduct business interviews in February to discuss new developments in the economy and come up with a new growth estimate.

In September 2017, the government gave an indicative GDP growth of six percent.

Commenting on fears that the dry spell may dampen improvements made, Sado said authorities cannot speculate but will wait until consultations are done to assess the impact.