Economist Intelligence Unit casts doubt on recovery plan
By Taonga Sabola & Chimwemwe Mangazi:
Global economic think-tank, the Economist Intelligence Unit (EIU), has said the K580 billion Social Economic Recovery Plan (Serp) is unlikely to succeed in pulling out the local economy from doldrums induced by the Covid pandemic.
President Lazarus Chakwera unveiled the two-year Serp aimed at stimulating strategic parts of the economy to ensure that Malawi stays the course with the Malawi 2063 first 10-year Implementation Plan (MIP-1).
The Serp was launched on December 28 last year.
But in an analysis posted on its website, the EIU says the Serp is coming at a delicate time politically, with the government under pressure to match its 2020 election rhetoric to tackle poverty with action in the face of growing discontent, and a backdrop of large anti-government protests over economic hardships.
According to EIU, under the Serp, about K397.8 billion, or 68 percent of total funding, will go to the healthcare sector, aimed at enhancing capacity in the healthcare system and purchasing Covid vaccines.
It says the second largest allocation, of K101 billion, goes towards cash transfers to households and businesses, which, if implemented swiftly, could take some of the sting out of protests.
“In terms of financing, the plan envisages a mix of tax revenue and concessional finance but is light on detail. No specific tax measures are included, beyond vague talk of more efficient collection (repeatedly proven to be an elusive goal in Malawi). Official development loans will in practice be the critical source of financing.
“Herein lies a problem: relations with the IMF have faltered since December 2021, when fund officials discovered that Malawian authorities were misreporting foreign reserves. Until ties are normalised, the imbroglio could scupper efforts to secure concessional funding,” reads the EIU analysis.
The EIU adds that the successful implementation of the Serp requires formidable reforms to weed out corruption and curtail inefficient spending.
“In summary, the Serp is not going to be a lightning-fast solution to the President’s political problems, notably the ongoing protests, and is unlikely to be implemented in a way that materially alters or improves Malawi’s economic growth trajectory.
“Potential downside risk remains in terms of funding the Serp, and hence we do not expect the programme to be a quick fix for Malawi’s socio-economic challenges. We nonetheless remain upbeat about our growth forecast for 2022, as we foresee a strong rebound in agriculture and the gradual post-pandemic reopening of the economy,” EIU says.
Meanwhile, the National Planning Commission (NPC) has emphasised the need to focus on productive sectors to generate jobs and wealth as well as public finance management reforms to close public finance leaks if the economy were to recover from the pangs of Covid.
In an interview earlier, NPC Director General Thomas Munthali said, notwithstanding the external shocks of cyclones and Ukraine-Russia war, the economy has remained largely resilient by regional standards.
“This is work in progress. Treasury has, within its tight fiscal space, made provisions for the Serp areas and the non-State actors have been actively engaged, especially development partners and investors,” Munthali said.