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Malawi fragile, low income State—IMF

The International Monetary Fund (IMF) has classified Malawi as a low-income country in a fragile situation, a development economic commentators say makes the country a vulnerable State.

In its sub-Saharan Africa Regional Economic Outlook, the IMF has maintained the country’s growth at 2.2 percent while the budget deficit has been projected at 8.2 percent of the gross domestic product (GDP) or K730 billion.

Most Malawians will continue to live in poverty

In a press statement on the launch of the report on Thursday, IMF director of African Department Abebe Aemro Selassie said the outlook remains highly uncertain as the recovery of the region depends on progress in the fight against Covid-19 and is vulnerable to disruptions in global activity and financial markets.

He said: “At 3.7 percent this year, the recovery in sub-Saharan Africa will be the slowest in the world—as advanced markets grow by more than 5 percent, while other emerging markets and developing countries grow by more than 6 percent. This mismatch reflects sub-Saharan Africa’s slow vaccine rollout and stark differences in policy space.

“Furthermore, increasing debt vulnerabilities remain a source of concern, and many governments will have to undertake fiscal consolidation. Half of sub-Saharan Africa’s low-income countries are either in or at high risk of debt distress. And more countries may find themselves under future pressure as debt-service payments account for an increasing share of government resources.”

Selassie said policymakers face three-key fiscal challenges to tackle the region’s pressing development spending needs, to contain public debt and to mobilise tax revenues in circumstances where additional measures are generally unpopular.

In an interview yesterday, Economics Association of Malawi executive director Frank Chikuta observed that with a GDP per capita of $625 (about K511 000) as of 2020, Malawi is way below the $1 046 minimum (about K856 000) GDP per capita for lower-middle income countries.

He urged government to work hard in taming fiscal deficits.

Said Chikuta: “The budget deficit is very high and unsustainable by all standards. For instance, in the Sadc [Southern African Development Community] macroeconomic convergence criteria the upper limit for budget deficits is three percent of GDP.

“The government needs to work hard to ensure that the deficits are reduced to sustainable levels to avoid a public debt crisis.”

On his part, Malawi University of Business and Applied Sciences economics associate professor Betchani Tchereni said while the classification means Malawi is a vulnerable State, there is need to channel energies towards accelerating growth and creating more wealth for everyone by focusing on diversification and industrialisation.

“Indigenisation of industrialisation will assist us. We must leverage this to get more resources from international development partners to assist us grow,” he said.

The 2021/22 National Budget, framed at the height of subdued economic activity due to the impact of the Covid-19 pandemic, projects a budget deficit of K718.3 billion, or seven percent of the rebased GDP during the initial budget design framework.

Both Ministry of Finance and the National Planning Commission (NPC) were yet to respond to our questionnaire as we went to press.

However, in an earlier interview, NPC director general Thomas Chataghalala Munthali said Malawi could attain the middle-income status by 2030 if it focuses on a few tangible projects that have an impact.

He said what the country needs are few tangible projects within the three pillars of the Malawi Vision 2063 (MW2063) development plan and the seven enablers that support it.

Said Munthali: “All we need to graduate into a middle-income economy are a few big infrastructure projects, few agricultural commercial investments, a couple of big mines and few industrial projects.

“If we focused on few projects without spreading our resources thinly, this talk of Malawi being among the poorest will be history by 2030, not even 2063.”

Through the MW2063, the country aspires to attain a middle income status in 42 years, where incomes are envisaged to rise from $400 (about K327 000) to as much as $12 000 (about K9.8 million) annually.

With that dream, annual earnings for each Malawian or gross national income (GNI) per capita could rise to between $3 956 (about K3.2 million) and $12 235 (about K10 million), which is the range the World Bank places upper middle-income economies

The MW2063 document says to become an upper middle income country, Malawi’s investment in both the public and private sectors has to be high enough to allow the country to grow by at least six percent annually.

The MW2063 seeks to transform Malawi into a wealthy and self-reliant industrialised upper middle-income country by 2063.

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