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World Bank tips Malawi on economic stability

The World Bank has said there is need to reduce cost of capital, address weak fiscal environment and bring down inflation if the country is to achieve economic stability and sustain a recovery in economic growth.

This is according to the bank’s recently published report, Pathways to Prosperity in Rural Malawi.

Rural households struggle to buy basic necessities due to poverty

“[These] three actions are needed to achieve stability: bring inflation—expected to average 23 percent between 2014 and 2016—under control, reduce the cost of capital, which is too high, as evident from interest rates above 40 percent, and address the weak fiscal environment by maintaining the upward trends in revenue mobilisation and coupling them with expenditure discipline,” reads the report in part.

The Bretton Wood institution said immediate actions to stabilise the macroeconomic environment are good not only for growth but also for the poor as well as in bringing immediate relief to the budgets of the poor because lower inflation would increase the purchasing power of the kwacha, Malawi’s currency.

“A reduction in the cost of capital would increase access to finance for a larger share of the population. Consumers would be able to afford purchases, entrepreneurs would improve profit margins, and welfare would improve,” the report adds.

However, the bank said inclusive growth is unlikely to be achieved or be sustainable without improving the productivity of agriculture, with 84 percent of the population living in rural areas and approximately 64 percent working in agriculture, substantial and sustained agricultural growth is necessary to improve the welfare of the rural population.

“Reducing rural poverty in Malawi will require four elements: stabilise growth that is consistent and strong, raise the labour incomes of the poor by increasing the productivity of agriculture and facilitating movement into new, more remunerative nonfarm activities,  give larger and well-directed transfers to the poor by reforming existing safety net programmes to help them to protect their incomes and assets against shocks, and expand female secondary education and family planning,”  the report said.

The bank has projected a 4.4 percent gross domestic product (GDP) growth this year owing to a bumper harvest expected this year.

In 2016, United Nations Economic Commission for Africa’ (ECA) African Social Development Index (ASDI) report revealed that Malawi and the rest of Africa are getting poorer than two decades ago fueled by inequality.

In an earlier interview, Centre for Social Concern (CFSC) project officer Kondwani Hara said that on average, rural households generate K13 000 while in an ideal situation, a family of six was supposed to have K125 000 to buy basic necessities.

“Malawi is a predominantly agro-based and most farmers who produce our staple food live in rural areas. If the workforce has been affected by hunger and poverty, this reduces the productivity and the whole economy will be affected,” he said. n

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