Positive economic outlook  for Malawi amidst threats

Malawi’s is certainly facing a positive economic outlook that could result into an improved environment in the later months of the year 2017 but significant threats still exist that may bring back the country on the vicious circle of economic malaise going forward.

Malawi’s current rate of inflation at 16.10 percent is the lowest since February 2013 when it was recorded at an all-time high of 37.90 percent.

The inflation rate in Malawi has averaged 15.31 percent between 2001 and 2017, with the highest in February 2013 and the lowest 6.30 percent in December of 2010.

A consistent slowdown in inflation and stability of the Malawi kwacha since the beginning of the 2017 has been joined by the onset of the tobacco market and a good harvest of maize and almost all food crops and this is expected to further reduce inflation and stabilize the Malawi kwacha in the next few months.

It would therefore not come as a surprise if new Reserve Bank governor, Dalitso Kabambe, starts his job with an announcement of a further cut in lending rates which was recently reduced to 22 percent from 24 percent by the central bank.

Meanwhile, things are also looking good in revenue collection where the Malawi Revenue Authority (MRA) has reported a surplus of 2 percent for the month of March 2017 when K53.7 billion was realized against the month’s target of K52.48 billion.

MRA has since recorded a total revenue collection of K502.47 billion for the 2016/2017 financial year up to March 2017, against a projected figure of K463.7 billion for the period.

And the Malawi Stock Exchange (MSE) has returned to bullish times, with 8 of the 13 listed companies registering impressive profits while only two – NBS Bank and National Investment Trust Limited (NITL) have declared losses. Blantyre Hotels Limited (BHL), Illovo and Old Mutual are yet to announce their latest results.

Such is the buoyant run of the Malawi economy that both the International Monetary Fund (IMF) and the World Bank have forecast the country’s GDP to return to reasonable growth in 2017 – albeit with different projections by the two Bretton Woods institutions of 5 percent and 4.2 percent respectively. The Malawi government is even more optimistic and expects the local economy to grow by 6 percent in 2017. All the projections, however, represent an increase from the low 2.6 percent growth recorded in 2016.

While the London-based Economic Intelligence Unit (EIU) has forecast Malawi’s headline inflation to close the year 2017 at an average 17.9 percent, it is more optimistic about 2018 and expects the same to ease at around 11.2 percent by next year.

With this year’s good crop output and a stable kwacha that survived much of the 2016/2017 lean period without major depreciation as is usually the case, the EIU inflation projection may look realistic if the state of affairs is supported with sound fiscal management by the Malawi government and an urgent address of some major bottlenecks affecting general productivity in the country.

Along the current positive economic run in Malawi are valid risks that could make the current outlook unsustainable.

While Malawi’s growth projection is pinned on improved agriculture production, challenges remain in the industrial and service sectors where factories have been reported to be running on half scale due to prolonged electricity shutdowns being experienced in the country.

Unless the situation is addressed, real economic growth will continue to remain below 6 percent – which is the recommended rate by the World Bank for economic conditions in a country to start trickling down to the masses and help reduce poverty.

Accelerated public expenditure as the government starts electioneering ahead of the 2019 general elections as well as a possibility of increased global oil prices could also undermine efforts to further reduce inflation and lending rates.

While foreign exchange reserves will remain above the international standard of above 3 months of import cover during the tobacco export period up to around October, it is likely to drop to deficit levels after that, thereby bringing back instability of the local currency due to the country’s prevailing weak export base that remains heavily dependent on tobacco.

And with the President Arthur Peter Mutharika’s government’s commitment to fight corruption under serious questions coupled with a slowdown in public financial management reforms, strained relations between Malawi and international donors are likely to prevail, making resumption of external aid to the country very unlikely.