By Kingsley Jassi:
As Malawi’s population has been increasing rapidly, while productivity has been slowing down, the World Bank has urged authorities to reverse the trend before it is too late. With population growing at 2.6 percent annually, the economy has struggled to hit 2 percent of late, making GDP per capita to contract over a four-year period.
At the launch of the latest Malawi Economic Monitor ( MEM) in Lilongwe, a World Bank annual report that provides the bank’s economic analysis, several testimonies from economic players confirmed the ground is slippery for productivity, calling for urgent reverse. Exports are very minimal, covering just about 25 percent of the import cost and this has been weakening the structure of the economy. But the report goes down to fundamental issues affecting productivity, citing national budgets that have been sweeping resources from the financial market, making the government take up to 70 percent of credit.
Financing budget deficits at over 10 percent of the GDP meant increasing money supply, elevating inflation too high. This, in effect, has also necessitated the Reserve Bank of Malawi (RBM) to increase policy rates to the current 26 percent, pushing lending rates up to 37 percent in commercial banks. As this deterred any borrowing for production the economy’s supply side pressures kept rising.
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The money supply growth has also been adding pressure on the foreign reserves, making access to forex extremely difficult. Finance Minister Joseph Mwanamvekha said it is high time the elite stopped discussing and started acting.
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“We want to do things, not only, right but also faster, efficiently and timely. The time to change is now. We have been holding these meetings for too long and it’s time for action,” Mwanamvekha said in a keynote address. Perhaps such actions have already started with the visible scale down of borrowing, as noted by the MEM report. The Treasury had turned down treasury bills, creating panic in the financial sector as banks have now turned to the private sector, offering loans. Malawi Confederation of Chambers of Commerce and Industry President Wisely Phiri hailed the government for its recent steps towards stabilising the economy.
“Whatever the government is doing to reduce borrowing is working,” he said. World Bank Country Manager Firas Raad acknowledged policy managers already underway, stressing on the need to sustain them and ensure four critical objectives that include, restoring macro economic stability, enabling private sector dynam ism , improving public service delivery and strengthening Infrastructure for growth. “We recommend recent efforts by the government to slow down on borrowing and reduce expenditure. These efforts need to be sustained to attain the much needed stability and economic growth,” Raad said.
This is the 22nd report the bank has issued, centering on challenges and policy recommendations to increase exports.
