The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has expressed doubt over some underlying assumptions and projections on key macroeconomic fundamentals outlined by the Treasury in the 2021/22 National Budget.
The pessimism is embedded in MCCCI’s May Economic Review published over the weekend.
Among other things, the industry’s umbrella body doubts projections by Finance Minister Felix Mlusu that the country could attain a 7.5 percent annual average inflation rate in 2021 and 7.3 percent in 2022.
Mlusu’s assumption is premised on account of subdued food inflation brought about by increased maize supply.
The Malawi’s Chancellor of the Exchequer also projected that the exchange rate would remain stable at K780 to a dollar moving forward.
However, MCCCI holds that, while these are fair assumptions, the country’s rising domestic debt still poses a great threat to inflation.
“With a current domestic debt of about 38 percent of GDP, the government risks losing investors’ confidence in the nation’s fiscal position which has the potential of pushing interest rates on Treasury bills, in turn pushing inflation up.
“In addition, the Covid pandemic has revealed just how vulnerable our exchange rate is to external shocks due to the country’s negative trade balance. As the country recovers from the second wave, there should be caution moving forward due to fears of a third wave of the pandemic,” MCCCI says in the report.
It says, as things stand, the negative trade balance has continued to put pressure on foreign reserves, making it fairly difficult for the local currency to retain a stable value as it is fixed to the US dollar.
“In the medium-term, this may limit the Reserve Bank’s ability to adjust interest rates as well as lead to diversion of hard currency away from the bank to the black market because of a large gap between official and unofficial rates,” it says.
The industry captains say to this end, there is a need for the government to continue exploring ways of transforming the economy towards industrialisation which can guarantee a stable exchange rate.
When responding to questions in Parliament prior to the passing of the national budget, Mlusu said a good agriculture season is also associated with moderate inflation rate because availability of food items has a significant bearing on price developments in this country.
“It, therefore, leaves Malawians puzzled when one fails to understand why economic growth is projected to rise after such a strong agriculture performance. In fact all economic indicators, including the exchange rate, derive their dynamism from developments in economic growth,” Mlusu said.
The government projects a gross domestic product growth rate of 3.8 percent in 2021 and 5.4 percent in 2022.