IMF counters government on growth projections

The International Monetary Fund (IMF) has cut Malawi’s growth projection for 2022 to 0.9 percent from an earlier 2.7 percent projection, citing the war between Russian and Ukraine and a cost-of-living crisis caused by persistent and broadening inflation pressures. 

At 0.9 percent, the growth projection is 0.8 percentage points lower than the government’s growth projection for this year.

In its World Economic Outlook published on Tuesday, IMF said the Russian invasion of Ukraine continues to powerfully destabilize the global economy saying the war has led to a severe energy crisis that is sharply increasing costs of living and hampering economic activity in many countries, Malawi inclusive.

In an accompanying statement to the report IMF economic counsellor Pierre-Olivier Gourinchas said the increasing price pressures remain the most immediate threat to current and future prosperity by squeezing real incomes and undermining macroeconomic stability.

“A growing share of economies is in a growth slowdown or outright contraction. The global economy’s future health rests critically on the successful calibration of monetary policy, the course of the war in Ukraine and the possibility of further pandemic-related supply-side disruptions.

“Central banks around the world are now laser-focused on restoring price stability, and the pace of tightening has accelerated sharply. There are risks of both under and over-tightening,” he said.

Globally, the IMF growth has forecast to slow from  six  percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.

This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the Covid-19 pandemic.

This year, the government had projected growth at 4.1 percent but revised the same downwards to 1.7 percent owing to the weather shocks that affected the country’s rain-fed agriculture sector, and the shock to commodity prices posed by the Russia-Ukraine war.

RBM recently indicated that the Russia-Ukraine war has jeopardised growth prospects from the bank and the central bank to support economic recovery, forcing it to revisit the monetary policy stance.

RBM said unless there are interventions to reverse the soaring prices for energy, fertiliser, wheat and other related commodity prices, heightened inflation pressures could persist in 2022.

RBM feared that to net-importing countries, including Malawi, the deteriorating terms of trade emanating from the exogenous global shocks could exert further depreciation pressures to the local currency, thereby fuelling inflation.

Nico Asset Managers recently also observed that the Russia and Ukraine conflict has impacted the economy through both direct price effects and implications on downstream activities.

The firm said instability in global commodity markets is resulting in higher prices for fuel and fertilizer, further constraining foreign currency reserves and exerting downward pressure on the exchange rate as such growth is expected to be modest this year.  

According to the firm other downside risks to the growth prospects of Malawi include impact of the cyclone Ana and cyclone Batsirai which hit the southern part of the country, delayed and early cessation of rains and intermittent electricity power supply.

Economics Association of Malawi executive director Frank Chikuta has since observed that low growth means low economic activity hence low employment and incomes for people.