Bank urges reforms to cushion Malawians

The continued instability of Malawi’s economy could bring more pain to Malawians unless government intervenes with effective measures, the World Bank has warned.

Addressing delegates to the launch of the 17th edition of the Malawi Economic Monitor (MEM) in Lilongwe yesterday, World Bank acting country manager Efrem Chilima said the country’s economic position remains unstable despite the waning influence of external pressures such as the Russian War on Ukraine.

He said the policy positions adopted by the government could pose an additional economic risk.

Said Chilima: “The sustained implementation of expansionary fiscal policy amidst a constrained resource envelope continues to weaken the fiscal position, while public debt is already high and unsustainable.

“High domestic prices of goods and services continue to exert additional pressure on household incomes and push additional people into poverty.”

The MEM, titled ‘Powering Malawi’s growth’, observes that the country is currently facing a macro-fiscal crisis characterised by unsustainable debt, protracted forex shortages, and high inflation.

In his presentation at the summit, World Bank senior country economist for Malawi Jacob Engel said the crises emerging in the different sectors of the economy are reinforcing each other, a development he cautioned could lead to a never-ending spiral of economic instability.

He said: “A weak economic growth is resulting in reduced government revenues, which leads to deficits. Deficits then lead to increased government debt.

“High government debt leads to high interest rates. When interest rates go up, the government commitments to interest payments will go up, taking away spending from other sectors such as health, education, agriculture, and mining, which could power growth.”

According to the report, government exceeded its targets for taxes on income, profits and capital gains by 0.3 percentage points in the 2022/23 Financial Year, collecting revenue amounting to 5.7 percent of gross domestic product (GDP) against targeted revenues of 5.4 percent of GDP.

However, the government overspent by over four percent of GDP in compensation of employees and acquisition of non-financial assets, resulting in substantial expenditure overruns “that offset the good performance in revenue collection”.