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The nut cracker: Malawi’s economy is indeed in the hands of God, it is now official!

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A couple of months ago, the newspapers were awash with the news that Hon Goodall Gondwe had made a statement to the effect that the Malawi economy was in the hands of God. There was a furious reaction from a lot of people.. Of course the Minister clarified that he never said those words. However, last week, I was convinced that indeed the Malawi economy is in the hands of God.

The Reserve Bank of Malawi on 11 April 2016 published on its website the “Financial and Economic Review for Fourth Quarter 2015”. Reading the report one cannot but agree with the analysis that the Malawi’s economy is in the hands of God. On page 1 of the report in the first paragraph one is confronted with the following statement: “Meanwhile, a rebound is expected in 2016 as the economy is projected to grow by 5.1 percent. However the growth rate could be revised downwards due to the continued negative impact of El-Nino weather conditions on the agricultural sector.”

Voila! There you have it; the economic growth in 2016 will depend on the weather conditions which affect the agricultural sectors which is a major determinant of the economy in Malawi. Who controls the weather? God! So if the weather is controlled by God and the economy depends on the weather, then the logical conclusion is that the economy is indeed in the hands of God.

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Again the statement of the monetary policy Committee of the Reserve Bank of Malawi released on 18th February 2016 also repeated the same notion in its third paragraph “On the domestic front, economic growth is projected to rebound to 5.6 percent in 2016 from 3.0 percent in 2015. However, the growth is likely to be revised downwards considering the dry spells reported in some parts of the country due to El Nino.”

Now tell me, who is in charge of El Nino? Not Goodall Gondwe, not even Charles Chuka, not even the DPP and of course not even APM. However, I still believe that these people have a responsibility to ensure that the dependence on God for the Malawi economy is eliminated or indeed reduced.

My argument is that this is not the first time that Malawi’s economy has been negatively impacted by bad weather conditions that affect the agricultural sector. It is also a known fact that every time agricultural sector does badly, inflation shoots through the roof and the rest of the economy performs badly. Both the Reserve Bank of Malawi and the Ministry of Finance knows that inflation in Malawi is mainly controlled by food inflation.

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The fact is, Malawi has an inflation problem that needs to be tackled and this does not depend on God. The problem is that even when empirical research has shown that inflation in Malawi is not money driven, for some unknown reason the authorities have believed in the use of monetary policy to curb it. But utilising the monetary policy status quo of an inflation target is not a good solution.

There a sons behind Malawi’s inflation challenges are multifarious, including a high degree of dependence on imports, the uncertain impact of rains on food production and poor infrastructure negatively impacting the distribution of goods across the country.

Malawi’s inflation challenges and indirectly economic problems, particularly related to food, are more supply side related. Relying only on monetary policy to deal with inflation is suicidal since increasing interest rates stifles the private investment needed for improved agricultural production. Food prices in Malawi are sensitive to the rains because its agriculture has not seen the productivity growth it needs. In addition, the politicisation of food (which for some reason in Malawi is equated to only Maize) makes it difficult to have a proper debate on reforming the FISP programme since such reforms might lead to a loss of votes.

Hence from a politician’s viewpoint, it’s much easier to deal with these issues through monetary policy and not fiscal policy. However, this comes at a huge economic cost like excessively high interest rates and loss of private investment in appropriate technology (due to the high cost of capital) that can improve productivity in the agricultural sector. It is only technological and infrastructural investment in the agricultural sector that includes irrigation that will make Malawi’s economy less dependent on God!

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