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Instability, uncertainty: Malawi’s economy 2015

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Author and anthropologist, Edward Weyer Junior once said “the future is like a corridor into which we can see only by the light coming from behind.” This entails that projections in all spheres of life, economics primarily inclusive, are premised on the past trends.

Malawi might have missed this point when setting its 2015 macroeconomic predictions, most of which now is deemed not to tally the projections.

Regardless of a poor macro-economic performance recorded in 2014 due to, among other things, the cashgate, government set unrealistic economic goals and targets for 2015 just to instill hope to the populous and the donor community.

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Malawi is now embroiled in economic instability caused by a combination of factors which include external and natural shocks, poor economic management and uncertainty which has brought some speculative trading of foreign exchange on the market.

Wrong assumptions

President Peter Mutharika, at the opening of the 2015/16 budget meeting, said that the country’s economy was projected to register a real Growth Domestic Product (GDP) of 5.4 percent.

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The optimism came despite setbacks such as floods and dry spells that affected the agricultural production.

In February 2015, Reserve Bank of Malawi (RBM) governor Charles Chuka went further to predict a drop in the inflation – the general rise in the average prices of basic goods and services — to 15 percent by mid end of the year.

These and other optimistic figures were incorporated in the 2015/16 budget tabled in Parliament in June by Finance Minister Goodall Gondwe.

The financial plan was premised on the assumption of a GDP growth rate of 5.4 percent, an average inflation of 16.4 percent, and an exchange rate of K450 to the United States dollar.

“We should start congratulating ourselves based on how well we have performed with the meager resources available,” said Gondwe when he presented the budget to Parliament in May 2015.

The reality

The rhetoric, however, came at a time prevailing challenges threatening the economy with most indicators like inflation, interest rates and performance of the local unit the kwacha already showing signs of instability.

True to the fears, Malawi’s economy has closed the year 2015 with spiraling inflation now at around 24.7 percent from a projected rate of 16.4 percent, lending rates at around 37 percent and the Malawi kwacha trading at nearly K700 to the dollar from a projection of K450.

Apart from the absence of donor aid, proceeds from tobacco – Malawi main foreign exchange earner, also dropped to US$337.3 million during the year from US$ 366.3 million earned during the previous year.

High interest rates and the falling local currency are now rendering Malawi’s businesses uncompetitive, with a visible slowdown in economic activity in the country. These coupled with current power challenges will continue to take a toll on consumers’ spending power and companies.

Where have we missed it?

Apart from the natural catastrophe facing the agricultural output, the runaway inflation seems to have also been influenced by government’s continued appetite for expenditure despite having in place a deliberate spending plan.

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