Short Term Plans, Good Weather Condition To Rebound Economy In A Year-Gondwe

Malawi exprerienced floods

Government says through number of strong measures being pursued and given good weather conditions this year, the country will resume economic stability within a short period of time.

Gondwe: Economy will normalise soon

Minister of Finance Goodall Gondwe, made the promise on Wednesday in the National Assembly when delivering a Ministerial Statement on the Economic Status of the country. 

He repeated several times in his speech that the basic origin of the current destabilized macro-economic environment was huge 49% currency devaluation, free float of exchange rate in May 2013 and continued withholding of the budgetary support by donors.

“Within the public sector, withdrawal of budgetary aid in 2013-2015 exacerbated this poor economic situation resulting in excessive government domestic borrowing (of up to K122 billion) and huge payment of arrears (of up to K155 billion). Therefore the public sector is being forced to take stringent budgetary adjustment that involves realigning budgetary expenditures with reduced total budgetary revenues.” He said 

He said this was exacerbated by catastrophic weather conditions early this year when the economy was beginning to normalize and resuming robust economic growth path.

He said the calamity of floods and drought in January 2015, have caused acute shortage of food countrywide and severely damaged tobacco production which is a key export commodity that helps to stabilize the exchange rate.

Gondwe therefore admitted that the country’s Macro-economy is destabilized as evidenced by persistence high inflation rate, high level of interest rates and volatile depreciating exchange rate. He said demand for goods and services is declining steadily, economic activity has slowed down and inconsequence the employment levels and incomes are stagnant and poverty levels are rising.

Gondwe however said Malawi is taking strong adjustment measures as regards the budget and fiscal reforms including measures that will require stringent sacrifices as other countries did in 1990’s.

He said other neighboring countries passed through harder times than Malawi is facing now and there is hope that Malawi will make it through this tough time. However his remark stirred differing views in the House.

He said in the Government short term agenda the goal is to resume economic normality in the coming year or two.

He said to address these problems Malawi has aligned number of initiatives and programmes including implementation of IFM programmes.

“In order to achieve macro stability and to maintain it we will have to confront challenge of diminished budgetary revenues as a result of the loss of the budgetary support. IMF verdict that its programme in Malawi is off-track beckons the need to reduce to take further measures to reduce budgetary expenditures urgently and to exercise caution in the management of resources” said Gondwe while informing the House that Government has began to implement these measures

He also mentioned continued deeper budgetary adjustments, inconsiderable sacrifices from every Malawian including state and private institutions and exercise stringent discipline in the use of resources.

He said government is also enhancing public finance management reforms as an important part of economic policies that could lead Malawi out of its problems by reforming fiscal system to enable heightened fiscal control and reporting. He said the programme is instilling the fiscal discipline so that available resources are used efficiently.

To combat hunger he said Greenbelt administration has been requested to prepare a double cycle of maize production that can produce about 1 and half million tones of maize and beans. He added that large agricultural firms such as Illovo has been asked to produce maize which government can buy in case of weather.  

He said with rigorous implementation of programmes and initiatives will be able to change the economic outlook of the country.

He said however that there is need for Malawi to take strong adjustment measures particularly as regards the budget and fiscal reforms including measures that will require stringent sacrifices as other countries did in 1990’s.

He said other neighboring countries passed through harder times than Malawi is facing now. However his remark stirred differing views especially strong protest from Mangochi Monkey-Bay legislature Ralph Jooma who said it was wrong for the minister to tell people that they will have to go through times that neighboring countries experienced.

What were government expectations if budgetary aid was available and there was no floods and drought?

Minister of Finance said government expected conducive economic environment in 2014-2015 financial year after expecting good harvest of food and cash crops and after creating disciplined fiscal system a condition set by donors to resume budgetary aid.

Gondwe added that despite the expectation of government to restore budgetary support in 2014-2015, Government framed a cautionary budget centered to curtail budgetary expenditures so as to balance diminished revenue levels. He said the budgetary adjustment was to be a forerunner of measures that would continue to be needed to establish budgetary self sufficiency.

He said the focus of the budget was to reduce inflation rate that could then trigger the decline in the level of interest rates brining about the resuscitation of the needed robust resumption of growth and poverty reduction.

“True to the government expectations inflation commenced to decline progressively and reached 18.2% in March 2015 from 37.9% in 2013. Food inflation decelerated from 38.2% to 17% during the same period and non food inflation declined from 42.8% to 17.8%” he said 

He said the January 2015 the catastrophic shock floods (drought conditions brought acute food shortage) reversed macro-economic gains that were beginning to be experienced. “The inflation began to rise again, and policy interest rate was increased to combat heightening inflation pressures and prevent possible loss of foreign reserves.”

He said the exchange rate also began to depreciate steeply and registered a plunge of 23.3% between January and September 2015 but said this rise was one of the lowest in the region in the same period.