Economy moves from rescue to recovery—RBM

The Reserve Bank of Malawi (RBM) deputy governor (economics) Naomi Ngwira says the country’s economy has moved from “rescue to recovery” based on a number of economic indicators.

She said the gross domestic product (GDP) is expected to jump, foreign exchange reserves have picked up, private sector capacity utilisation has markedly improved and foreign currency arrears settled.

“We will certainly be producing more this year,” said Ngwira, in a Capital Radio programme, Economic Perspective on Sunday, accompanied by RBM’s manager for research and policy analysis, Kisu Simwaka.

Simwaka said GDP is expected to peak at five percent this year from a tepid 1.9 percent in 2012, foreign exchange reserves are now at 2.6 months of import cover from only two weeks in May 2012, private sector capacity utilisation is now at between 65 percent and 70 percent, and that most of the companies have re-established their credit lines.

He also said inflation, which eased to 27.9 percent in June from 31 percent the month before, has been on the downward spiral thanks to the availability of maize, which, as part of food, accounts for about 50.2 percent in the Consumer Price Index (CPI)—a measure that examines the weighted average prices of consumer goods and services.

Malawi is this year expected to realise a maize surplus of about 300 000 metric tonnes, according to the Ministry of Agriculture.

These indicators, said Simwaka, show that the economy is fast picking up.

On exchange rate, Ngwira said monetary authorities are pursuing a managed float, arguing the exchange rate needs to be managed because “sometimes markets may not operate optimally”.

“Exchange rate is an important driver of inflation in Malawi,” she noted.

Simwaka argued that if the exchange rate is not managed, it becomes difficult for businesses to plan, arguing the exchange rate being pursued is the one that is predictable.

When the RBM devalued the kwacha by 49 percent in May 2012 and adopted a market-determined exchange rate, the local unit was on a free-fall until April this year when it started appreciating.