Finance Minister Goodall Gondwe and Reserve Bank of Malawi governor Charles Chuka have once again attracted wrath from various commentators for their optimistic projections of the economy which are generally being viewed as unrealistic and misleading.
Among other things, Gondwe has projected that the economy may reach a recovery point by May this year with inflation reduced to as low at 15 percent.
The sentiments have been shared by Chuka who believes that the central bank may be able to start reducing interest rates by the end of this financial year due to low inflation and a stable exchange rate.
First of all, I must say that Goodall and Chuka’s optimism should not be surprising as it is normal in their respective jobs to be positive about economic prospects, even when everything is heading in the wrong direction.
It’s the same with a captain in an airplane that is obviously headed for a crash. The pilots will always make everyone believe that you will survive even when they know that chances of that are very minimal.
If the pilot were to paint a gloomy picture of the prospects, there would be pandemonium in the plane which could reduce chances of survival.
So you don’t expect a Minister of Finance or governor of the central bank anywhere in the world to state publicly that the economy will be up in smoke. They have to be optimistic as anything otherwise can spell doom and cause more havoc in the economy through speculative trading and even capital flight.
It is the minister’s responsibility to focus on the positives while working on addressing the negatives.
It’s the positives that can inspire hope and encourage hard work among investors both local and foreign in support of economic recovery.
Secondly, it is good for the minister to promise recovery because he will be forced to work extra hard to deliver the promise or at least something closer for fear of being taken to task by the people should the projections not be attained.
Come May this year, the minister’s promises or projections will form the basis of people’s questioning of his delivery. If he had not made the promise, we would have no enough grounds to take him to task should the economy still be in the Intensive Care Unit by the stated time.
Even with the external and natural factors affecting the economy such as drought and frozen aid, it is still possible for economic stability to be achieved through fiscal discipline and tight monetary policy – which are within the control of the Minister of Finance.
If Goodall can enforce strict expenditure in line with the Public Financial Management Act, inflation can be slowed down and interest rates can be eased as the government will no longer have to borrow heavily domestically to finance the budget.
So things are not completely out of Goodall’s control.
Thirdly, it is important to understand that Goodall and Chuka’s projections are based on the assumptions that rainfall will be normal this year and that the European Union and the World Bank would have resumed budget aid support to the government by that time.
Should rains come normally and the two donor agencies resume aid, it is possible for the economy to start getting into the path of recovery by June this year because a good maize harvest will translate into reduced inflation while normal foreign exchange earnings from tobacco supplemented with foreign exchange from the donor grants, will boost reserves and result into stability of the kwacha.
What could make Goodall and Chuka’s targets unachievable, however, is continued dry spell or eruption of floods destroying crops and infrastructure, 2016 being an El nino year, as well as government’s failure to meet conditions required for the resumption of aid by the World Bank and the European Union.
For example, the government has up to end next month to enact the Access to Information Bill – which is one of the key conditions for the disbursement of grants by the two major donor agencies. The country also has to get back on track with the International Monetary Fund (IMF) as one of the requirements for the aid.
And there are several other tough conditions to be met by the government for the EU and the World Bank to re-open their taps.
So it is not as easy as Goodall puts for the ambitious targets set to be achieved by May. It will take a lot of commitment, sacrifice, hard work, donor’s considerations as well as the hand of God.
Goodall should, however, be commended for his attempt to inspire confidence about the future. #ThumbsUp Minister of Finance.
A vibrant writer who gives a great insight on hot topics and issues