2016 bad year, gondwe admits

He promised an economic growth rate of 5.1 percent this year.

Goodall Gondwe is on track to achieve just half of that for Malawi as the sun sets on the year 2016 and an uncertain dawn of 2017 approaches gingerly.

With the country’s population growth rate estimated at 2.8 percent, the 2.5 percent jump in gross domestic product (GDP) means that GDP per capita has shrunk in the year, signalling a plunge in standards of living or worsening poverty.

No wonder Gondwe—the Minister of Finance, Economic Planning and Development—has swallowed humble pie and conceded in an exclusive interview this week that the year 2016 has been tough for both citizens and government as the cost of living soared on the back of falling real incomes amid persistently high inflation rates.

Data from the Centre for Social Concern (CfSC) shows that while an average family of six needed K155 000 per month for basic survival in January 2016—10 months later (November)—the same household had to raise K172 000.

Hunger and persistent power outages subdued economic growth in 2016

Hunger and persistent power outages subdued economic growth in 2016

With minimum wage at K20 631 per month, it means that most people needed to have eight jobs each of the same wage to meet a month’s basic upkeep.

Said Gondwe: “All was not well in the year ending as the weather did not permit the country to produce crops to an extent that we failed to earn a lot of money.”

The country did not produce enough food despite the relatively high level of public spending on agriculture of about $250 million (around K192 billion) annually.

Yet, around half the country is starving—putting pressure on the national budget to allocate tens of billions for to maize imports instead of using them for economic-boosting infrastructure.

At least $395 million (around K288 billion) is needed to address the food crisis, of which government has only contributed a fraction while donors are expected to source the bulk of the resources.

Similarly, low levels of production from other crops such as tea, sugar, pulses, and an underperformance of the main foreign exchange earner, tobacco, has further depressed GDP growth which, by extension, worsened the economic pain.

In fact, the country’s growth rate is falling further below regional averages of about four percent, according to the World Bank in its Malawi Economic Monitor released in May this year.

The impact of scarcity of food, especially, maize which is the key commodity in the basic needs basket, elevated for most part of 2016, only declining in the last quarter of the year.

As of November, headline inflation stood at 19.9 percent while the average rate of inflation is projected to stand at 20.8 percent for the year 2016. Last year, the average annual headline inflation rate stood at 21.9 percent.

The tepid drop could be attributed to free distribution of food to the hungry, a move that has helped to hold maize prices.

Apart from weather-related weak agricultural output; frail spending in the economy—especially public sector investments—and shrinking business output as the cost and environment of doing business worsened—hit growth even harder.

Weak private sector output has also sharply pierced government finances as the Malawi Revenue Authority (MRA) has struggled to collect taxes from the ‘engine of growth’, which is just sputtering away amid coughing bouts that hinder its productivity.

Gondwe also partly blames the dismal performance of the economy in 2016 on donors who he said had not “lived up to their promise to provide aid through their own means” to Malawi.

“Although donors promised to help the country through their own means there are still many gaps in as far as their funding is concerned. I hope that the donor community, while they may not give us direct budget support [DBS], they will provide ad hoc support, and this support will be increased,” he said.

In the good old days, donors would fill that revenue gap through DBS; hence, Gondwe’s hope that development partners would return to the national budget to help stem a fiscal  crisis that is making it harder for government to run, including funding social sectors such as health, education and agriculture while loosening up enough fiscal space to invest in public infrastructure, retiring choking public debts and paying arrears to businesses so that they can have operating capital to remain alive, create jobs and pay taxes.

Direct budget support which most donors have abandoned and is discretionary—constitutes just about 10 percent of the national budget, and data from the World Bank shows that over the last seven years, Malawi has received an average of $964 million per year in official development assistance (ODA), which is equivalent to around 60 dollars per person per year.

In fact, inflows grew steadily from 2008 peaking at $ 1 275 million in 2013. But following a major public financial management scandal, Cashgate in 2013, the level of on-budget development assistance has declined dramatically although it still averages $932 million annually.

The view that donors have not lived up to their promise was rejected on Wednesday by Britain, Malawi’s traditional donor.

Hellen Chabunya, head of political and public affairs at the British High Commission in Lilongwe, said in an e-mail interview on Wednesday that UK’s commitment to support Malawi has not changed since 2011.

“UK is a major donor and long-standing development partner of Malawi.  UK aid plays a critical role in improving the lives of millions of Malawians. Our strength of commitment to support Malawi has not changed since 2011, we have provided over £400 million [K400 billion at today’s rates] to tackle poverty and improve the lives of the poorest people in Malawi,” she said.

She added: “Our levels of support for next year and beyond will be confirmed soon, but rest assured that UK aid in Malawi will remain for the long haul,” Chabunya explained.

In a recent interview, Gondwe said he was positive that multilateral institutions such as the World Bank, the European Union (EU) and the African Development Bank (AfDB) would provide budgetary support of between $110 million (K80 billion) and $120 million (K88 billion) by March 2017 to support the current K1.2 trillion fiscal plan.

But so far, AfDB has remained the only development partner providing budgetary support to Malawi in the wake of the plunder of public resources in 2013.

Last year, AfDB provided $26 million (about K15 billion) sector budgetary support targeting provision of health and education services and last month it gave Malawi $17 million (about K12 billion) for food relief.

All these problems have hit the private sector hard.

In an earlier interview, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) president Karl Chokotho said almost all sectors of the economy were severely affected in 2016.

He said sluggish economic growth saw some companies and industries closed down while others were forced to scale back operations or relocated to other countries, and workers faced job cuts.

The MCCCI chief also cited persistent electricity blackouts as contributing to the poor showing, according to its flagship Doing Business 2017 Report released this month.

Persistent power outages follow declining output by sole hydropower generator and supplier the Electricity Supply Corporation of Malawi (Escom) from 351 megawatts (MW) to 135MW due to Lake Malawi water level drop.

As a result of the power outages and other factors such as corruption, the report says business confidence has dropped this year from 65 to 58.5 percent in 2015.

In a separate interview on Tuesday, Economics Association of Malawi (Ecama) president Henry Kachaje said government must take necessary steps to revive the ailing economy.

Said Kachaje: “Hard hit by the ailing economy is the private sector, touted as the engine of the economy. It looks like the engine has been knocked down and has ceased, so some repairs need to be done.”

Chancellor College economics professor Ben Kaluwa yesterday said time and again economists have been urging government to anchor the economy with our own efforts.

“It is possible to transform the country only if we have the will and all we need is to put proper policies and practices,” he said. n

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