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Thursday, February 08, 2007

Stanbic paints rosy picture
by Ephraim Munthali, 08 February 2007 - 07:37:16
The Standard Bank Group has painted a rosy picture of the Malawi economy, pegging this year’s Gross Domestic Product (GDP) at seven percent and predicting that inflation should hit the single digit mark in 2007.
The group said in its January 2007 economic “Blue Print” for Malawi that good weather conditions plus the K7 billion Fertiliser Subsidy Programme could sustain the rebound in agricultural output and push inflation to single digits so long oil prices remain low.
Last year, inflation averaged 13.9 percent from 15.4 percent the previous year, largely thanks to the bumper maize harvest, a stable exchange rate, declining world oil prices and, of course, prudent fiscal and monetary policies.
Some market analysts already see the plummeting inflation rate resulting in lower interest rates, especially after the Reserve Bank of Malawi slashed the liquidity reserve requirement from 20 percent to 15.5 percent effective 1 February this year.
The last time interest rates fell was last November when the central bank slashed the benchmark bank rate from 25 percent to 20 percent.
Authorities see low interest rates as a key clue in their intensive search for an economic growth rate of more than six percent which technocrats say is ideal for the country to reduce poverty that has left six in every 10 Malawians surviving on less than K140 a day.
“According to preliminary crop estimates, agricultural output should support a rebound in real GDP growth of more than seven percent,” said the pan-African banking group. Provisional real GDP figures estimate growth for 2006 to be 8.5 percent.
With government working hard to improve the macroeconomic environment through, among other measures, expenditure restraint, the coming year seems to have some room for even lower interest rates, it said.
The bank added that key macroeconomic objectives for 2006/7 remain largely consistent with the approved Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF as the government is well aware of its need for continued donor support.
Donors finance close to 40 percent of Malawi’s national budget, making good relations with them indispensable to Malawi.
In June 2005, the IMF approved a new three-year US$55.9 million PRGF programme for Malawi after the Fund suspended the economic assistance in 2000 due to consistent poor economic management by the Bakili Muluzi administration.
The Fund renewed the programme after the Bingu wa Mutharika administration, which assumed office in May 2004, asked for a one year Staff Monitored Programme from June 2004 to establish a consistent track record of policy execution and win back donor support which had dried up.
Good implementation of the PRGF in the first year saw the Fund and the World Bank rewarding Malawi by cancelling 90 percent of the country’s foreign debt—only the 20th country to achieve the feat.
The debt forgiveness means that Malawi will be saving US$100 million or 1.7 months of import cover annually since the country will be retaining the money instead of externalising it to service the debt which stood at US$3 billion before the cancellation.
“The [PRGF] programme is strongly focused on improving expenditure control as the key to restoring macroeconomic stability and economic growth. The government is committed to programme implementation though it holds a minority position in Parliament and faces intense political pressure,” noted Stanbic.
The bank said it expects spending priorities to remain steadfast on improving food security, particularly through the development of agriculture-related infrastructure, such as dams, irrigation schemes and the rural road network.
“This is expected to tie in with schemes to encourage subsistence farmers to grow cash crops and diversify away from mainly maize. Economic policy is also expected to remain focused on boosting growth through developing the agro-processing, mining and tourism sectors. This will require improving the national infrastructure, particularly electricity and water provision,” said the bank.
It added that while doubts still linger on the performance of tobacco, continued donor interest in the country’s development initiatives could create confidence in the Malawi kwacha during the year.

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