Malawi’s economy shines,politics threatens prospects

BY GERALD NAMWAZA

12:36:59 - 18 June 2008



MALAWI
can be considered one of the best performing economies in Southern
African Development Community (Sadc) but unfavourable political climate
stands in the way of progress, Standard Bank research economics says.



But that could be history. Some analysts say the increase in fuel,
fertiliser and food prices would erode past economic gains and put the
presidency in a tightrope to tame the political heat and direct the
fragile economy.



Added to this cocktail of problems is the potential threat of losing
donor money for the 2008/09 budget on political tension between
government and opposition which could see about K90 billion in
budgetary support up in smokes.



Except for oil rich Angola over the past three years, the report says
Malawi’s economy has attained growth rates of more than 7 percent
compared to 5 percent in the region and has slashed domestic debt from
25 percent to about 11 percent.



The reduction of domestic debt slashed government’s impetus to crowd
out the private sector on the money market and in the process released
more funds for private sector to borrow and boost their operations.



This has been reflected in the increased total net domestic debt
extended by the banking system to the private sector by 68 percent to
K90 billion in January 2008 that has resulted in more export earnings
for the country.



According to the report, authored by Anita Last and Kondwani Mlilima of
Standard Bank, exports which from the 1980s to 2004 stagnated at
between US$400 and US$500 million reached a record of just over US$700
in 2008 and is expected to hit above US$800 next year.



The success of the economic landscape has been attributed to the
country’s unwavering adherence to prudent economic management as
unveiled in the past national budgets that has put more emphasis on
agriculture.



Just like in the past budgets, the focus of President Bingu wa
Mutharika has been on agriculture and infrastructure development as has
been reflected in Goodall Gondwe’s K229 billion budget.



It has channelled about K32 billion to this sector part of which would be used



“Despite the downturn in economic activity in developed countries, and
the high oil and food prices, the budget has been prepared on the basis
of relatively good and robust macroeconomic assumptions,” reads the
report in part.



It assumes that the goods and services produced during the period will
jump from about K520 billion to K580 billion and that inflation rate
would be at 6.5 percent while the bank rate would fall to 12.5 percent
from the current rate of 15 percent.



National Bank of Malawi (NBM) in its June economic newsletter says food
shortage –which accounts for about 60 percent weight in the Consumer
Price Index—would put pressure on inflation, making the underlying
budgetary assumptions obsolete.







As if these economic challenges are not enough, the tension between
government and opposition is throwing spanners in the economic agenda
of the country as it races towards the achievement of the Millennium
Development Goals (MDGs).



In an interview with Reuters this week, head of the United Nations
mission in Malawi Michael Keating said Parliament needs to pass the
budget to get support from the donor community.



But it would appear this is a tall order to a parliament that is
divided on whether to pass the national financial plan first or to
resolve the controversial Section 65 before discussing the budget.



The country is in political tremor since February 2005 since President
Bingu wa Mutharika broke away from United Democratic Party (UDF) with a
legion of members of parliament to form his own Democratic Progressive
Party (DPP), a development some analysts say is the genesis of the
current political upheaval.



In 2007 soon after passing the budget Mutharika dismissed the National
Assembly before the issue of Section 65, which regulates the movement
of MPs, was resolved.



The President argues that Section 65 infringes on the rights of people
to associate freely while the opposition insist that it is a
constitutional matter and should be resolved before the budget.



Meanwhile waiting on the wings is the business community to grab
opportunities in construction projects, supply of drugs to hospitals,
move fertiliser to rural masses and a host of other business ventures
that would allow them to employ more Malawians.



Incidentally in 2004 general elections, former president Bakili Muluzi,
who is now national chairman of UDF and its presidential candidate for
2009, told people to vote for Bingu wa Mutharika saying he was an
“economic engineer,” who would turn around the economic fortunes of the
country.