Complement monetary policy with economic resilience

The International Monetary Fund (IMF) last Wednesday hailed Malawi’s performance in the fund’s Extended Credit Facility programme with Malawi, a development which led to the disbursement of an additional

$15.4 million to the national coffers.

IMF deputy managing director Tao Zhang said Malawi’s programme performance has been satisfactory after the Malawi government met most of the performance criteria, with the Malawi government exceeding expectations in international reserves and reducing the number of government securities held by the Reserve Bank of Malawi.

However, Zhang notes that: “[Malawi’s] fiscal position deteriorated due to larger-than-expected maize purchases—for food security after poor harvests in some parts of the country—as well as increased spending to ensure safe elections and payments of past arrears”.

Without a doubt, Capital Hill should be commended for its commitment and efforts in entrenching macroeconomic stability and performance—in as far as proving our credit worthiness and “inspiring donor confidence” is concerned.

But, the fact that the nation’s fiscal position can “deteriorate” because of poor maize harvests clearly shows that Capital Hill still has a lot of work to do to enhance economic resilience and promote inclusive growth.

It is quite unfortunate that 53 years after independence, the nation’s macro-economic performance can be undermined by poor maize harvests.

Figures from the National Statistical Office released on Tuesday, maize—which constitutes 45.2 percent in the consumer price index (CPI), as part of food inflation—was one of the factors that contributed to the rise in inflation  by two basis points from 9.5 percent as of September to 9.7 percent in October.

The rise in inflation rate could prompt the Reserve Bank of Malawi (RBM) to raise the policy rate [the rate at which commercial banks borrow from the central bank], a development that will likely compel commercial banks to raise the lending rate.

A higher lending rate would increase the cost of borrowing from commercial banks and other financial institutions, robbing people of the much-needed funds for investments into some productive enterprises that could boost gross domestic product (GDP) growth. Controlling maize supply, and by extension, its price on the local market will have a significant bearing on the other programme targets, such as promoting poverty-reducing and resilient growth.

If Malawi is hit by another poor maize harvest, it could undermine the drive for inclusive growth considering that 80 percent of Malawians that use the grain as staple food will be deprived of their usual food source. n

*Eric Mtemang’ombe is a guest writer of this column.