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| Mixed views on economy in 2004 |
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by
Ephraim Munthali, 28 December 2004
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15:12:49
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The macroeconomic climate in 2004 was better than the past five years but rising interest payments and government delays to distribute farm inputs could dampen economic prospects for next year, groups say.
Society of Chartered Accountants in Malawi (Socam) says government’s vigour to fight corruption, the fall in interest rates and renewed donor confidence was the best news on the economic front during the year.
“It hasn’t been a bad year,” says Socam executive director Hennox Mazengera.
“More people have started borrowing at a lower rate, a new economic programme with the IMF is on course and there is commitment to fight corruption,” he adds.
In June this year, the Reserve Bank of Malawi (RBM) slashed the bank rate by 10 percentage points from 35 percent.
The RBM also softened the liquidity reserve ratio from 30 percent to 27.5 percent to free up funds in the financial market and stimulate borrowing.
The ratio was scheduled to fall further to 10 percent this months but growth in money supply forced the central bank to postpone its plan to loosen monetary conditions.
Inflation was relatively stable at less than 12 percent despite fears that it would pick up on account of food shortages and fiscal deficit risks while the exchange rate was steady at around K108 through out the year.
On the political economic front, the last six months saw the new Bingu wa Mutharika administration which was ushered in June, clamping down on corruption and fraud related crimes.
This resulted in arrests of eight top officials in the Bakili Muluzi government, including the nabbing of former finance minister and Admarc general manager Friday Jumbe.
State prosecutors have not secured any convictions yet, igniting speculation from critics that Mutharika could simply be scoring political points from voters and the international community.
On international relations, the IMF and other bilateral donors have indicated that they are willing to technically and financially support Malawi’s economic programmes—after more than three years of dissatisfaction. So far, things look good.
But Mazengera says delays by the government to implement the targeted input programme (Tip) could dampen next year’s growth prospects as it could affect production by small holder farmers.
The shortage of fertiliser, deep into the growing season, could also be a hindrance, he says.
More than two million small holder farming households are expected to benefit from Tip which is estimated to cost government more than K2.5 billion.
But the programme has been marred by logistic problems with more than half the beneficiaries still waiting for the free farm inputs. Small scale farmers contribute up to 70 percent of Malawi’s total agricultural output.
Finance Minister Goodall Gondwe said in his budget statement in September that the input programme would help boost crop production and support a projected 4.2 percent GDP growth for 2005.
Meanwhile, Malawi Economic Justice Network deputy national coordinator Mabvuto Bamusi says although government controlled spending during the year, a lot of resources are going towards interest payments on the domestic debt.
“In fact, there are indications that the government will pay more on interests than initially planned. The question is, will there be enough money left for poverty reduction activities?” Bamusi wonders.
In the current budget, government planned to spend K20 billion or 30 percent of the K66 billion recurrent account on interest payments.
Bamusi also pointed out that Malawi has failed to reach the Highly Indebted Poor Countries (Hipc) completion point. The completion is a benchmark that allows countries to access debt relief resources with minimal conditionalities attached.
Malawi was scheduled to reach the completion point at the end of this month but the country’s failure to implement the IMF’s poverty reduction and growth facility programme jeopardised the chances. The period has now been extended to December 2005.
Speaking on behalf of the private sector, Malawi Confederation of Chambers of Commerce and Industry says business performance did not improve over the past 12 months.
“While there has been renewed hope in the business sector since the new government came to power, performance in the business sector remains mixed. The hope has not been translated into actual business for the most part,” says the Chamber’s economist Sadwick Mtonakutha.
Mtonakutha says government’s delay to implement the Malawi Economic Growth Strategy which identifies and provides solutions to business constraints, exposed the private sector to face the same old problems that have derailed business growth in the past.
“Improved performance will only start to appear when most of the factors constraining the enterprises and the competitiveness of the nation generally are removed,” says Mtonakutha.
He also says crucial public institutions like the Malawi Revenue Authority, Ministry of Transport and Public Works and the Ministry of Agriculture did not improve their service delivery to facilitate business expansion. |
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