Business and entrepreneurship expert from the Catholic University of Malawi (Cunima) Ferdinand Mchacha has said persistent macro-economic challenges such as high interest rates stemming from government’s appetite for borrowing and high cost of energy will stifle growth of the real sectors of the economy in 2024.
In an interview, Mchacha said the cost of production in Malawi is quite high due to two fundamental issues; that is, high financing costs and high costs of energy both electricity and fuel.
“Industries are financed by bank loans and production highly depends on energy. Unfortunately, the announcement by the Minister of Finance that our 2024-25 budget has a deficit of K1.43 trillion which will be financed by local borrowings implies that our interest rates will continue to be very high for the foreseeable future as government borrowing pushes up the interest rates on the market.
“If we can’t deal with government borrowing which is pushing interest rates high and the high costs of power, we will remain uncompetitive, our costs of local production will remain high. Such burdens will continue threatening local production and exports growth,” Mchacha said.
In an earlier interview, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Director of Business Environment, Madalitso Kazembe said growth of the sector hinges strongly on availability of foreign exchange, power supply and agricultural production.
However, she was quick to point out persisting challenges such as foreign exchange scarcity, lack of access and high cost of finance, level of taxes and cost of electricity.
“In order to grow this sector, an industrial development fund or special purpose vehicle should be implemented to provide patient capital specifically targeting investments in manufacturing. Maximum demand tariff for electricity should be reviewed and only be applicable when businesses are operating at maximum capacity and ensure consistent supply of foreign exchange,” Kazembe said.
Currently, Malawi’s debt to gross domestic product (GDP) stands at 81.3 percent.
But in an interview on the sidelines of launching the World Bank’s Malawi Economic Monitor, Secretary to the Treasury, Betchani Tchereni, said the government is on the right path to managing debt.
“The good thing is that we are doing two things that are quite important; first is rationalising our revenue collection but also focusing on production for exports and not consumption.
“If you look at the deficit in the 2024-25 budget at K1.43 trillion, it is a trimmed deficit which is a kind of a miracle because the IMF was expecting us to go to K1.645 trillion. To get to that figure we needed to look at revenue rationalisation and expenditure and we are getting somewhere,” Tchereni said
