Mutharika imports ‘Mugabe economics’
Persisitent fuel droughts, foreign currency shortages and donor fatigue has put Malawi on a slippery economic road that needs a strong political grip before the country slips into financial oblivion that engulfed Zimbabwe, analysts has warned.
But an official from Reserve Bank of Malawi has dismissed the claims as baseless claiming the economic landscape in Malawi is different from that of Zimbabwe and that the current financial predicament should be understood from a global perspective.
The reality though is that the business community is forced to make unsavoury decisions to cut costs and stay afloat in an economic environment propelled by the ambiguous Zero-Deficit Budget financial plan with no strong backing from the country’s traditional donors.
“Malawi cannot operate on a zero budget deficit as it is bed ridden with a narrow tax base and thin export revenues. The assumption that Malawi would pay its recurrent bills using its own resources is non- starter, the country need donors,” said a leading banker in Blantyre who once praised President Mutharikas economic policies.
The banker said when donors slammed doors in Zimbabwe, President Robert Mugabe tried to operate on a zero budget but realised its export base could not support key imports and ended up printing more money.
“Remember fuel and food shortages in Zimbabwe, the devaluation of the currency—Malawi is heading in the same direction,” said the banker.
He said despite the recent devaluation of the kwacha there were still forex shortages on the market an indication that the kwacha was still overvalued.
“Foreign direct investment is going down; donors have left us, forex shortages, and fuel supply in limbo, tobacco sales—once the country’s bread winner in tatters. I ask our politicians where this bus is heading to?” an emotional banker lamented.
The accomplished banker said the political will to harness Malawi’s resources into a producing and exporting country, a running theme during President Mutharika’s first term, has become all but a long forgone economic dream replaced by ill conceived and poorly executed policies.
He said the country would step up “quantitative easing” which means it will be printing a lot of money and use it to pay for government debts.
“That’s how this government will pump up more money on the market,” he added.
But this, according to leading economists, is counterproductive as it will push up the cost of goods and services as there will be more money chasing few goods and inflation will go up.
In an interview with Daily Times newspaper Finance Minister Ken Lipenga said government was in no hurry to devalue the currency but his views have been challenged by regional economics.
They argue any delay in devaluing the currency will choke the manufacturing sector which has run out of ideas to get foreign currency from traditional channels and are now resorting to the black market.
“Can you imagine a whole company asking for an individual in United States to pay for its imports because it can’t get the greenback on the market? This is ridiculous,” said Ron Nguluwe a Business Consultant who once worked in Malawi and is now based in Birmingham, United Kingdom.
In the run up to the 2014 general elections, some observers claim the country should brace itself for business closures, massive unemployment and general scaling down of business operations if government fails to come up with an economic rescue package.
Reserve Bank of Malawi and treasury officials said the situation in Malawi was different from that in Zimbabwe.
“We have increased our operations on the market through the sale of Treasury bills and Malawi Revenue Authority has stepped up its efforts in collecting taxes, yes we need donors but as a country we are also trying our best to stabilise things on the market,” said the official who declined to be named.
He said some of the economic problems in Malawi were born out of the global economic recession that has hit top notch economies like United States of America.
Malawi’s annual budget is largely supported by donors and cushioned by tobacco which contributes about 60 percent to the country’s export revenue. Poor tobacco trade this year married with the absence of donors’ budget support purse has sent the country’s economic plans on the brink of collapse.
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