Government has cut Malawi’s Gross Domestic Product (GDP) growth prospects for 2020 by 1.3 percentage points from 1.9 percent to 0.6 percent, The Daily has established.
The weaker GDP forecast is in line with the projection by the International Monetary Fund (IMF).
The downward revision is contained in a September 24 2020, Letter of Intent from Finance Minister, Felix Mlusu and Reserve Bank of Malawi Governor, Wilson Banda to IMF Managing Director, Kristalina Georgieva.
In the letter, Mlusu and Banda say that between April and September, the economic outlook of Malawi’s main trade partners of Europe, South Africa, and United States had further deteriorated, oil prices have risen, and Covid-19 cases have accelerated in Malawi.
“As a result, there have been additional adverse effects on our economy, bringing anticipated growth in 2020 down to 0.6 percent—a major downward revision compared to pre-pandemic projections of 5.1 percent.
“This has opened an urgent financing gap in the balance of payments, the amount of which is now estimated at about US$419 million in 2020 compared to US$176 million previously,” the letter reads.
According to the two officials, Malawi’s fiscal situation is also being affected by additional shortfalls in tax revenues due to the worsened economic outlook and significant critical spending needs, including in health care in line with the response plan developed with the support of the World Health Organisation (WHO).
In the letter, the two officials reiterated Malawi Government’s strong commitment to an effective and transparent use of public funds, and to ensure that the aid received, including from the RCF disbursement, and the freed resources from the Catastrophe Containment and Relief Trust and G-20 Debt Service Suspension Initiative, are efficiently spent on addressing the crisis.
“Specifically, we are regularly publishing procurement documentation—including tenders, bids, and names of awarded companies, products or services procured and their costs, and names of the beneficial owners of the awarded companies — on the Public Procurement and Disposal of Assets website . This applies to all Covid-19 related competitive bids and direct procurement by all Ministries, Agencies and Departments,” reads the letter in part.
The officials further indicated that to strengthen medium-term public debt sustainability and ensure sufficient fiscal space for critical resilience building and social and development spending, we plan to implement our comprehensive revenue mobilization strategy, including VAT reforms, in the 2021/22 fiscal year.
“To support these objectives and improve governance, we will continue to progress in reforms in tax administration, procurement, public financial management (including implementation of a new IFMIS), public investment management, oversight of state-owned enterprises, and debt management.
“The RBM will continue to gradually transition towards an inflation targeting framework by 2025 and study and address obstacles to forex market development,” the letter says.