A recent report published by the Economic Intelligence Unit (EIU) has predicted that the local economy will grow by a meagre 0.7 percent in 2023, lower than 0.8 percent recorded in 2020 when the country was hard hit by the Covid pandemic.
The report indicates that the real gross domestic product (GDP) growth will slow as domestic headwinds intensify.
It further predicts a devaluation of the Kwacha by 20 percent to shore up foreign exchange reserves, taking the exchange rate to K1,245.1 to a dollar at the end of 2023 from K1,048.5 per dollar previously.
The EIU has also revised the end 2023 inflation forecast to 35.4 percent from 19.1 percent and expects the Reserve Bank of Malawi to raise the policy rate to 26 percent at its next meeting in a bid to tame inflation.
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“We forecast a fiscal deficit of 10.2 percent of GDP in 2023-24. The shortfall will narrow markedly in subsequent years, reaching 4.3 percent of GDP in 2026-27 as spending is rationalised and donor confidence improves.
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“The deficit will be financed by domestic borrowing and money printing; so, public debt will fall only marginally, to 70.3 percent of GDP by 2026-27, from an estimated 77.3 percent in 2022-23. Our debt profile forecast depends on successful debt restructuring,” the report reads.
It says as inflation begins to moderate from 2024, it expects the RBM to have the scope for monetary loosening to support growth.
Economics Association of Malawi (Ecama) Executive Director Frank Chikuta said all factors point towards elevated inflationary pressures for the rest of the year.
“Obviously, in such an environment, monetary policy is expected to respond through a tighter stance. However, it is not possible to predict the MPC’s decision in terms of policy rate adjustment and by what magnitude. That would be utter speculation because many factors inform such decisions,” Chikuta said.
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Another economist Exley Silumbu said inflation will remain persistently high as food inflation soars.
Malawi University of Business and Applied Sciences-based economist Betchani Tchereni said the country should consider industrialisation, mining, and agriculture diversification among long term remedies.
The local economy grew by 1.2 percent in 2022 and Minister of Finance Sosten Gwengwe told Parliament while presenting the 2023-24 budget that it will grow by 2.7 percent this year.
Gwengwe further announced that inflation is expected to average 18.2 percent before the RBM reviewed the figure to 24.5 percent, which is 6.1 percentage points lower than the 30.6 percent average inflation predicted by the EIU.
