Economy on rebound—Gondwe

Public purse keeper Goodall Gondwe yesterday painted a picture of a Malawi economy on the rebound; its public finances on the mend and a ‘baby come back’ romance with donors who fled a fiscally abusive relationship roughly three years ago.

Presenting his 2016/17 Mid-year Budget Review Report in Parliament, Finance, Economic Planning and Development Minister Gondwe said an effective mix of fiscal and monetary policies has put the country’s economy on a firm path to recovery, although risks of a reverse remain.

Said Gondwe: “There is evidence that, six months into the implementation of the budget, the performance of the economy commenced a rebound towards recovery that is reflective of the effectiveness of the fiscal and monetary policies being pursued by the government.

“In particular, during this period, there has been a marked decline in inflation, which resulted in a 3 percentage point reduction in the Reserve Bank of Malawi [RBM] policy rate, while the exchange rate has remained relatively stable. The rate of inflation plummeted to 18.2 percent in January —the lowest since May, 2012.  Food inflation went down by three percentage points to 21 percent and non-food inflation eased to 15 percent from 15.4 percent.  This is a significant macro-economic improvement.”

Gondwe said another significant indicator of a possible economic turnaround is that capacity utilisation has increased from 57.8 percent to 68.5 percent during the period, suggesting an increase in private sector confidence.

The finance minister also cited the domestic revenue performance, which went up by 5.7 percent during this period, as a sign of a turnaround.

Gondwe told Parliament it is on the basis of this improvement that Malawi will most likely receive budgetary support from multilateral organisations such as the World Bank and the International Monetary Fund (IMF).

He said government is expecting $80 million (about K60 billion) from the World Bank after it expressed confidence in the success of the public finance management reforms which are a prerequisite for obtaining the support.

“A further $20 million [about K15 billion] from the European Union is expected in addition to what the African Development Bank [AfDB] has already disbursed,” Gondwe told the lawmakers.

Gondwe is also optimistic of a $20 million disbursement from the IMF when they complete their ninth review of the Extended Credit Facility (ECF) within the financial year.

“But just like last year, economic recovery would be premised on the 2016/17 agricultural production. The government is, therefore, consciously optimistic that an economic recovery could emerge this year.  Therefore, a continuation of sound fiscal and monetary policies is crucial,” he said.

However, Gondwe warned that budgetary adjustments would continue to balance revenue and expenditure, to minimise domestic borrowing.

The finance minister said these developments, coupled with the high prospects for a much better agricultural season relative to the two previous seasons, create a positive outlook to sustain the economic recovery.

“This is the basis for the government’s projected surge from an economic growth rate of 2.9 percent in 2016 to approximately 6.0 percent in 2017. Therefore, a continuation of the implementation of the sound policies underpinning these gains is key,” he explained.

Gondwe told the House that these are preliminary signs of a rebound, and that the extent to which a real recovery can occur depends on how our agricultural production will turn out to be in the course of 2017.

The government is, therefore, consciously optimistic that an economic recovery could emerge this year.  Therefore, a continuation of sound fiscal and monetary policies is crucial.  These policies must be anchored by a fiscal consolidation, now that we are discerning positive results of pursuing the sound fiscal policies that the Government has embarked on.

However, he said it is so far encouraging that the donor community is among those who have observed a discernable improvement in public finance management reforms that are being pursued by Treasury separately from the Public Sector Reforms Committee headed by Vice-President Saulos Chilima.

Gondwe rattled out figures showing a healthy fiscal position and outlook.

For example, public spending in the first six months was within budget while domestic revenue beat its mid-year target although foreign aid sharply fell short of expectations.

Total revenue and grants is now projected at K999.2 billion against the budgeted figure of K978.0 billion, representing an increase of 2.2 percent.  On the other hand, total expenditure is being revised downwards from K1.14 trillion to K1.129  trillion representing a reduction of 1.7 percent.

Domestic revenue has been revised upwards from K783.3 billion to K840.5 billion, an increase of K57.2 billion or 7.3 percent. Tax revenue has also been revised upwards by K46.1 billion (representing a 6.5 percent rise), from K708.8 billion to K754.9 billion.

Gondwe has also revised non-tax revenue from K74.5 billion to K85.6 billion, an increase of 14.9 percent on the back of an anticipated dividend from RBM.

While grants from donors, on the other hand, have been revised downwards from K197.4 billion to K158.7 billion.

According to Gondwe, this is mainly due to lower than anticipated disbursements in project and dedicated grants.

“It should be noted, Mr. Speaker, Sir, that the downward revision in total expenditure from K1 149.2 billion to K1 129.4 billion is due to an expected decrease in disbursements of foreign financed projects.

“This reduction in overall expenditure would have been larger were it not for the increase in interest payments as indicated earlier. Let me repeat that the mushrooming interest payments on domestic debt reflect the conversion of zero coupon promissory notes as they mature, and this will result in a surge of interest payments for the next three years,” he said.

The finance minister told the House that on taking over the government in June 2014, it was discovered that Government had accumulated arrears amounting to K155 billion.

He said if the payments of these were to be made from the budget that time, it would have paralysed government operations.

But Malawi Economic Justice Network (Mejn) executive director Daliso Kubalasa yesterday said the statement by Gondwe indicates that the country is in a tight economic situation and urged Treasury to work out a balancing act that will ensure the poor are cushioned.

“I think the major thing from the statement is that we can all see now that we are barely making it on a hand-to-mouth basis. This is a precarious situation.

“We need to make life and death choices. The crucial part is managing expectations, it is the norm that ministries expect increased funding during Mid-Year Budget Review and here we are not in a position to do so.”

He said Malawi still has areas where resources are being wasted and the Treasury needs to work extremely hard to ensure that there is efficiency in government. We need to be realistic and honest with our estimates. The increased local revenues should not make us spend anyhow.

“We also need to be honest with our performance output. As Mejn we are looking forward to getting the rest of the budget documents so that we are not seeing a rosy picture while the reality is different,” said Kubalasa.

Malawi Health Equity Network (Mhen) executive director George Jobe in an interview said while the body accepts Gondwe’s reasons for rethinking the budget’s projections warned that any downward projections of the health sector will spell doom for service delivery. n