D.D Phiri

Economic imponderables

 

Some economists when approached by the media have stated that the decline in the inflation rate means that the economy is set for a brighter future. They should have emphasised on the jargon cateris paribusmother, things or conditions remaining the same. As we all know conditions do not remain the same, at least not indefinitely.

Inflation is a symptom of economy not its disease. Inflation has been between 20 and 30 percent for two years because of two economic diseases. One was food shortage caused by droughts and floods. Where shortage of goods popularly purchased there is will be a rise in price according to the law of demand and supply.

The other disease was excess government borrowing. Government has within the current financial year tired hard not to borrow excessively. When it borrows, it generates exc4ess liquidity, it puts more money in the buyers hands during the time production of goods or manufacturer of products either declines or remains stuck. Then you have demand pull inflation too much money chasing few goods.

If inflation is to keep dropping, the food abundance should be repeated in the next season. This will depend on whether the rains will continue to be favourable and farmers will be motivated to maintain or increase the acreage devoted to food. Can we be sure of the latter if maize prices fall to levels where farmers suffer losses?

The government will continue to refrain from excess borrowing if it does not have the pressure that forced it to borrow in the past.

Mindful of the general election in two years to come and restive behaviour of some civil servant (strikes) might compel the government to succumb to demand by engaging in deficit finance alias borrowing.

Why these caveat? They are meant to keep us vigilant, awake not to take things for granted. Have we forgotten that ten years ago or so, when the economy achieved a high growth rate, some DPP stalwarts went into the streets shouting Malawi is now a developed country. Let us change the flag to reflect our country’s new economic status.

During the Kamuzu/MCP era, something similar happened. The Bretton Woods Institutions in the 1970s had described Malawi as a star performer. The reserves were ample, our shops were so well stocked that affluent men and women in neighbouring countries were coming to our supermarket in Lilongwe and Blantyre to do their shopping. But the good days did not last.

If Malawi is indeed a developmental state, it must not hesitate to apply administrative measures and counteract unfavourable market trends. Besides, let us not forget that what Malawi needs is economic growth, nit business as usual. Economic growth takes place if there is continuing investment in all sectors of the economy not just agriculture. Foreign Direct Investment (FDI) is a prerequisite for development. But FDI goes to countries where there is political stability. Therefore, people must refrain from provocative rhetoric such as there must be a change of government. This could generate an atmosphere of political uncertainity and scare away FDIs.

One factor could guarantee economic growth is foreign aid. The president has returned from his latest overseas trip with great and welcome news from the EU and other donors are ready to assist.

The decision by World Bank to resume budgetary support is most assuring. It could influence the donors to follow suit as has been the tendency in the past. But we must act so as to deserve the change of heart on the part of our development partners. They except us to achieve optimum result in the fight against corruption. The ball is on our feet. n

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