Long way to Malawi’s economic stability
It appears a foregone conclusion that the economic stability mark is not anywhere in sight for Malawians. Worse still, the path is devoid of shortcuts.
In his State of the Nation Address made in Parliament on Friday, President Lazarus Chakwera conceded that the local economy was at a crossroads, requiring Malawians “not to engage in wishful thinking”.
“…the bad news is that our macroeconomic indicators signal that our economy is suffering from several vulnerabilities,” Chakwera admitted.
Economic volatility
True to President Chakwera’s words, almost all key macroeconomic fundamentals are seen in red.
The economy, already riddled with many structural challenges, also remains susceptible to myriad exogenous shocks, affecting its growth prospects.
The government expects the economy to grow by a meagre 2.7 percent this year— an estimate below peers, and way shy of the six percent gross domestic product (GDP) annual average target if Malawi is to attain the middle-income economic status by 2030.
Headline inflation—the rate at which commodity prices change at a given period in an economy—has been on an upward spiral, albeit easing slightly to 25.4 percent in December 2022. The rate remains way too high compared to countries within and beyond the Sadc region.
The cost of living is elevated While many Malawians have had a static level of income, the minor gains that a few others have recorded are equally eroded by continued ceding of the buying power.
Pressure persists on the local unit, the Kwacha, as it continues losing its grip against other major trading currencies. In 2022 alone, using the Reserve Bank of Malawi (RBM) middle rates, the local unit depreciated against the US Dollar, the British Pound, the South African Rand and the Euro by 25.73 percent, 15.56 percent, 21.42 percent and 21.80 percent, respectively.
This is largely attributed to glaring mismatches between forex demand and supply, where, due to the country’s insatiable appetite for imports coupled with inability to produce enough for the export market, the country remains a net importer.
The Import bill stands at $3 billion per year while the country is only able to export commodities and services valued at $1 billion only per annum.
Cost of borrowing remains way too high for the private sector to effectively tick, a thing which could be partly faulted for the high unemployment.
In Malawi—where more than half of the about 20 million population are the youth—unemployment and underemployment risks remain the most pressing concern.
The ugly menace of the vice has mostly been visible during ‘walk-in interviews’ where thousands jostle for mass recruitment.
Graduates are not spared. They are either completely left out of the equation or are forced to vie for jobs not befitting their qualifications and skills.
These notwithstanding, other challenges, like rising public debt due to lack of fiscal prudence and rising corruption, keep many Malawians in the abyss of power for long, while the economy remains miles away from the recovery spot.
Where to from here?
Hearing speeches from either politicians or technocrats, it is easy to conclude that no one is amused with the status quo.
Alas, cumulatively, it is vivid that less effort seems to have been deployed to tally the rhetoric.
For Malawi to address such economic bottlenecks there is an urgent need to get to the basics first before attempting sophisticated models.
Anything that will free the fiscal space while propelling private sector efficiency is a prerequisite at this point.
For starters, it is a known fact that fraud and corruption has eroded the country’s chances of making headway in many spheres.
Nipping corruption in the bud would surely free a lump sum of the public resources which should be ideal in addressing some of the prevailing challenges the economy faces.
This augers well with the ideals of fiscal prudence where public resources would have to be safeguarded jealousy. The country cannot afford a hefty budget each financial year whose resources do not tally the development endeavours.
We cannot afford a yawning budget deficit which is funding consumption while pushing a burden on the next generation to settle debts whose effectiveness they could not track. A cut on some of the populists’ public initiatives and expenditures which do not add value to the economy is a must.
Further, special attention should be given to private sector development interventions. We all are aware of factors affecting growth of the industry in Malawi; top of which is the need for creating a conducive environment.
Massive radical investment of public resources in such sectors as energy, mining, and tourism remains a step towards broadening the economic base. This, however, cannot be done at the expense of the agriculture sector which remains a mainstay of the economy.
While the rest of the sectors become compliments, the country should awaken the sleeping giant in the agriculture sector by commercialising it. This will demand taking giant leaps beyond subsistent and manual agricultural production, a step which could guarantee food security in not more than three production seasons.
Addressing the food situation for Malawi entails taming the ever rising inflation, which has a ripple effect on the overall economic landscape.
