|
National Bank of Malawi (NBM) says although the country secured a programme with the International Monetary Fund (IMF) last October, the country is “still treading on a very thin line” between keeping the programme alive and having it suspended due to failure to fulfil some conditionalities.
In its New Year edition of the monthly Economic Newsletter, NBM observes that key among the issues derailing the programme are Admarc commercialisation which has since been effected, governance in connection with the Corrupt Practices Act Amendment Bill and implementation of the Public Procurement Act.
“In fact, the money flows being observed in the banking system indicate that the CABS [Common Approach to Budgetary Support] group has adopted a ‘go slow’ approach in providing direct budgetary support to government as grants,” reads the newsletter released on Tuesday.
NBM further says the ‘go slow’ attitude was likely to continue even if some of the conditionalities are met because most of the multiple economic targets are even harder to attain within the prescribed times while a few are “seemingly” contradictory.
The bank also says conspiracy theorists may as well deduce that an environment is deliberately being created to conveniently withhold budgetary support until after the May 18, 2004 general elections.
“This is because IMF and donors can then [after the general elections] have the comfort of making agreements with an administration which has a new five year mandate rather than one with a few months to go,” reads the newsletter in part.
On prospects for economic growth whose target is set at between five and six percent to be driven by small-scale agriculture, manufacturing, mining and tourism, NBM says this is not an achievable target given the dismal performance of the economy in the previous years which averaged 2.6 percent annually and included some years of negative growth rates.
“[But] it is very likely that the growth rate may be in the region of three to four percent, assuming favourable weather conditions,” said NBM.
Commenting on the reduction of the bank rate by the Reserve Bank of Malawi in a space of two weeks last November and December, NBM said while the cut by 10 percentage points to 35 percent was very welcome, the rate is relatively still high to stimulate private sector borrowing.
The bank also queried the speed at which the two five percentage point rate cuts were effected but said the market is expecting a further five percentage point cut to bring the interest rates down to around 30 percent inspite of the donors’ ‘go slow’ attitude.
Finance Minister Friday Jumbe, reacting to the two five percentage point rate cuts last month, said in an interview the rates would further go down because government had reduced its domestic borrowing as it was living within its means.
In the report, National Bank has also attacked the use of the liquidity reserve requirements (LRR), currently at 30 percent of the deposit base of commercial banks, saying it remains an ineffective means of controlling money supply because it by-passes a major chunk of the eligible funds within the system.
“Commercial banks are slowly, and perhaps unknowingly, being disengaged from their traditional role of intermediation upon which the central bank has to rely in its monetary policy implementation,” said the bank., adding the effective LRR in Malawi works out to be not more than 10 percent if the whole system was considered.
The IMF has proposed to lower the LRR to 10 percent by December 2004.,
National Bank of Malawi (NBM) says although the country secured a programme with the International Monetary Fund (IMF) last October, the country is “still treading on a very thin line” between keeping the programme alive and having it suspended due to failure to fulfil some conditionalities.
In its New Year edition of the monthly Economic Newsletter, NBM observes that key among the issues derailing the programme are Admarc commercialisation which has since been effected, governance in connection with the Corrupt Practices Act Amendment Bill and implementation of the Public Procurement Act.
“In fact, the money flows being observed in the banking system indicate that the CABS [Common Approach to Budgetary Support] group has adopted a ‘go slow’ approach in providing direct budgetary support to government as grants,” reads the newsletter released on Tuesday.
NBM further says the ‘go slow’ attitude was likely to continue even if some of the conditionalities are met because most of the multiple economic targets are even harder to attain within the prescribed times while a few are “seemingly” contradictory.
The bank also says conspiracy theorists may as well deduce that an environment is deliberately being created to conveniently withhold budgetary support until after the May 18, 2004 general elections.
“This is because IMF and donors can then [after the general elections] have the comfort of making agreements with an administration which has a new five year mandate rather than one with a few months to go,” reads the newsletter in part.
On prospects for economic growth whose target is set at between five and six percent to be driven by small-scale agriculture, manufacturing, mining and tourism, NBM says this is not an achievable target given the dismal performance of the economy in the previous years which averaged 2.6 percent annually and included some years of negative growth rates.
“[But] it is very likely that the growth rate may be in the region of three to four percent, assuming favourable weather conditions,” said NBM.
Commenting on the reduction of the bank rate by the Reserve Bank of Malawi in a space of two weeks last November and December, NBM said while the cut by 10 percentage points to 35 percent was very welcome, the rate is relatively still high to stimulate private sector borrowing.
The bank also queried the speed at which the two five percentage point rate cuts were effected but said the market is expecting a further five percentage point cut to bring the interest rates down to around 30 percent inspite of the donors’ ‘go slow’ attitude.
Finance Minister Friday Jumbe, reacting to the two five percentage point rate cuts last month, said in an interview the rates would further go down because government had reduced its domestic borrowing as it was living within its means.
In the report, National Bank has also attacked the use of the liquidity reserve requirements (LRR), currently at 30 percent of the deposit base of commercial banks, saying it remains an ineffective means of controlling money supply because it by-passes a major chunk of the eligible funds within the system.
“Commercial banks are slowly, and perhaps unknowingly, being disengaged from their traditional role of intermediation upon which the central bank has to rely in its monetary policy implementation,” said the bank., adding the effective LRR in Malawi works out to be not more than 10 percent if the whole system was considered.
The IMF has proposed to lower the LRR to 10 percent by December 2004.
|
