Cashgate impact on economy worries Mkwezalamba

Malawi Finance Minister Maxwell Mkwezalamba, has told Business News that he is worried with the likely erosion of economic gains that were recently consolidated by Malawi in the wake of cashgate revelations.

But the minister has said he believes the negative economic impacts will be short-term and temporal since government has put in place measures aimed at recovering the economy.

“We are indeed concerned that the gains will be eroded; that is why we are implementing measures to ensure that the economy is back on track,” said Mkwezalamba on Friday.

He said this in reaction to Business News query on how government intends to consolidate economic gains following the widespread fears by economic commentators that the recent withholding of budget support, totalling $150 million (over K60 billion) could erode such gains.

And a week ago, the African Development Bank (AfDB) confirmed the fears that Malawi risks losing its recent economic gains on account of weak public financial management and a slippage in fiscal discipline.

Beginning March this year, the economy enjoyed a deceleration in the year-on-year inflation rate before a U-turn in October when the National Statistical Office (NSO) announced that the October rate has edged up by 0.5 percentage point from 21.7 percent in the preceding year.

The economy has also been accumulating adequate foreign exchange reserves since the adoption of a package of economic reforms by the Joyce Banda administration, which at some point resulted into the local currency appreciating against the dollar manifesting high supply of dollars against demand on the market.

“Yes, looking back, indeed the numbers looked good as inflation was declining and the exchange rate stabilised, we were on the path to sustainable economic growth and we were expecting that by the end of the year we will grow by 5.8 percent and that inflation would go down to 14 percent with interest rate below 20 percent,” he said.

But the minister said the projected five percent real gross domestic product (GDP) growth rate for Malawi in 2013, is still moderately high as compared to last year’s growth rate.

In 2012, Malawi’s real GDP growth rate was earlier projected at 4.3 percent but a slump in agriculture emanating from a weather-related decline in maize production and a halving of the tobacco crop prompted authorities to revise the growth rate downwards to 1.8 percent towards the end of the year.

“And the exchange rate movement has not been in our favour and we have seen increases in prices of goods and services but of course part of the increases is due to the increase in food costs and as I said we should look at this as temporal,” said Mkwezalamba.

He said government acknowledges the need to have low inflation rate, stable exchange rate and achieve a high level of GDP growth rate which he said would entail macroeconomic stability.