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IMF projects subdued GDP growth for 2021

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Felix Mlusu

The International Monetary Fund (IMF) has further cut its projection for Malawi’s Gross Domestic Products (GDP) growth for 2021 to 2.2 percent.

This is contained in an IMF country report No. 20/288 published by the Fund recently.

The IMF further expects growth to fall to 0.6 percent in 2020.

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“Following a robust performance in the first half of 2020 owing to a strong harvest and substantial government spending, economic activity in the second half of the year is suffering from a further deterioration of the global outlook, resulting in substantially lower exports, a worsening economic impact of the pandemic, and a longer persistence of the shock.

“These factors are also expected to take a toll on domestic balance sheets with a continued rise in non-performing loans. A gradual economic recovery is expected between 2022 to 2025 with growth averaging 6.4 percent,” reads the report in part.

It further says inflation is anticipated to remain in single digits at 9.1 percent in 2020 reflecting contained food inflation and 9.5 percent in 2021 assuming an average harvest next year and higher international oil prices, and moderate towards 5 percent over the medium-term.

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The IMF has also indicated that current account deficit excluding official transfers is anticipated to widen, reaching 20.5 and 20.3 percent of GDP.

This reflects expectations of higher Covid-19 related imports, lower remittances, exports, and tourism given reduced global growth. Import contraction, due to as lowdown in domestic economic activity, will only partially mitigate the effects.

However, the IMF growth projections conflict with Capital Hill expectations that the economy will grow by 4.5 percent growth in 2021.

“…due to the adverse economic impact of Covid-19, GDP growth rate was revised downwards to 1.9 percent on the assumption that there will be gradual opening up of economic activities during the second half of 2020. In 2021, Madam Speaker, this economy is projected to grow at 4.5 percent,” Mlusu told Parliament recently.

In an interview economist, Sane Zuka, said the IMF’s stance represents the real situation on the ground.

He said at present, there is still a very big threat of global economic downturn from the effects of Covid-19 where countries are banking their hopes on expectations that there may be a covid-19 vaccine by the middle of 2021.

“We do not expect tourism and key exports to bounce back quickly. In-flows to NGOs have also been badly affected by the pandemic which means that some of the development projects have come to a stand still.

“It is doubtful that exports will increase considerably within these economic conditions to enable the country generate the much needed worth. It is important that the government should manage the agriculture sector properly to realise more gains as one of the economic sectors that has not been greatly affected by the pandemic in Malawi,” Zuka said.

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