The World Bank says investors remain skeptical of economic recovery despite assurances from authorities that the Malawi economy is on the right path to financial sustainability.
In its 5th Malawi Economic Monitor titled ‘Harnessing the Urban Economy’ released last week, the bank said business confidence remains subdued following two years of drought conditions and weak economic growth.
Cumulative weather shocks and reduced disposable incomes have negatively affected output across the agriculture, services and manufacturing sectors.
The World Bank says the resultant weak economic growth and the associated low level of confidence have been exacerbated by severe power outages experienced throughout 2016.
“High interest and inflation rates have eroded the returns on private investments, as demonstrated by the increasing share of non-performing loans. The slow pace of settlement of government arrears has also had an effect on private sector liquidity,” the report reads in part.
Two years of drought conditions have exacerbated pressures on an already weak economy which, even prior to these adverse weather conditions, was struggling to adjust to the impact of ‘Cashgate’, which resulted in a drastic reduction in on-budget development assistance.
This, according to the World Bank, has left the local economy stuck in a vicious cycle characterised by large fiscal deficits, excessive borrowing, and high inflation and interest rates.
In turn, the bank says, these factors depress investment and growth, which then leads to weak revenue collection performance, further exacerbating fiscal pressures.
To build resilience, the bank says it is critical that policy makers implement policy and institutional reforms to eliminate the policy-induced distortions that exacerbate agricultural and climate vulnerability.
Speaking when he opened the 29th Malawi International Trade Fair recently, President Peter Mutharika said government would continue improving the economy to create a more favourable business environment.
“We will continue implementing productive macro-economic policies in order to bring down inflation and interest rates far lower than you can imagine,” Mutharika said.