Malawi’s economic recovery fragile—EIU

The Economist Intelligence Unit (EIU) has said Malawi’s economic recovery is fragile and has so far pegged the country’s gross domestic product (GDP) at an average 4.2 percent between 2013 and 2014.

Earlier the EIU estimated that the country’s GDP would grow by 4.3 percent this year and 4.4 percent next year.

The GDP rebound is backed by growth in agriculture and donor confidence.

However, in a country analysis available to Business News on August 5, the EIU casts doubt on Malawi’s economic recovery and notes that it risks being derailed.

“Despite signs that the economy is starting to recover, social tensions over soaring living costs will remain a threat to political stability. The economic recovery is fragile and the government’s lack of a parliamentary majority could hinder effective policy-making as political bickering intensifies in the run-up to the 2014 polls. [However] assuming political disruptions do not get out of hand, strong donor support and commitment to reform should allow real GDP growth to pick up to an average of 4.2 percent in 2013-14,” reads the report in part.

However, Government has pegged the 2013 GDP growth at five percent up from 1.9 percent achieved last year.

Growth is expected to pick up in 2013 following a decline in growth in 2012 but experts have noted that power supply continues to be intermittent and costly economic adjustments may damage productivity.

Recently, Nico Asset Managers in its June Monthly Economic Report noted that growth in 2013 will be supported by the recovery in aid, the expansion of agricultural subsidies and improved investor sentiment as well as an increase in uranium production.

The investment advisory firm, however, noted that high interest rates may deter growth as the cost of borrowing is high and slowing down private sector growth.

However, commercial bank interest rates started to decline since early July, thanks to improved liquidity, a decline in treasury bills yields and a fall in interest rates.

So far short-term policy reforms have had negative effects on the economy especially through rising inflation which peaked at 37.9 percent in February this year but has receded to 27.9 percent in June.

Under the ERP, however ,government targets to achieve a three-month import cover, single digit inflation and annual GDP growth of 5.7 percent by December 2013.