Bank says economic growth faces risk
The World Bank says Malawi’s economic recovery and growth face risks from macroeconomic imbalances and continued government expenditure towards consumption at the expense of much-needed investment.
The Bretton Woods institution expressed the fears in its latest Malawi Economic Monitor (MEM), a biannual publication that provides analysis of economic and structural development issues.
The World Bank said growth is at risk of further waves of Covid-19 due to new variants, premature withdrawal of monetary and fiscal support and potentially heightened macroeconomic volatility that could arise when global financial conditions tighten.
Reads the report in part: “Supply-demand mismatches could persist, potentially due to another wave of Covid-19 cases, which could contribute to sustained elevated inflation.
“This could raise inflation expectations which would risk creating self-reinforcing cycles of inflation and inflation expectations which are difficult for policy makers to counteract.”
The World Bank further observed that public debt continues to surge upwards, thereby increasing interest rates, and reducing the ability of the private sector to invest in diversification.
“High fiscal deficits are expected to continue, which will only worsen this condition. At the same time, limited foreign exchange is increasingly a key constraint for the private sector,” said the bank.
A recent report by the Ministry of Finance’s Debt and Aid Division shows that between June 2020 and June 2021, Malawi’s total public debt stock surged by 34 percent from K4.1 trillion to K5.5 trillion.
On average, it means that during one year, government was borrowing a nominal K117 billion monthly to finance the deficit, currently at around K730 billion.
Experts have warned that Malawi is now on the precipice of a debt overhang, a debt burden so heavy that the country may not have the capacity to carry more loans.
The K5.5 trillion, comprising domestic and external debt, represents 59 percent of the country’s gross domestic product, up from 48 percent at the end of June last year.
University of Malawi economics professor Ben Kaluwa in an interview on Monday said the economy is still under pressure, singling out the instability of the kwacha and the rising cases of Covid-19 as some of the challenges.
He said: “The country faces a number of risks, including the slowdown in business activity and reduced production because of disrupted supply chains and difficulties in doing business under Covid-19 restrictions.”
The World Bank has since urged the Malawi government to make further progress with vaccinations to control the Covid-19 pandemic and address macroeconomic imbalances to create a stable foundation for growth.
It said Malawi needs to prioritise fiscal policies that rationalise expenditure and increase revenues to reduce fiscal deficits and stabilise debt levels.
Reads the report further: “Over the medium-term, the country needs to promote agricultural commercialisation, economic diversification and private sector-led growth.
“For Malawi to become an upper middle-income country by 2063, it will need to accelerate economic growth to double digits which would necessitate drastic structural shifts and private sector-led growth.” When presenting the 2021/22 Budget Statement in May, Minister of Finance Felix Mlusu painted a good picture on the macroeconomic environment, projecting that the economy will register real economic growth rate of 3.8 percent in 2021 and 5.4 percent in 2020.
