MUTHARIKANOMICS: WILL IT BREAK MALAWI’S VICIOUS CYCLES?

It is not only the President Peter Mutharika’s voice that strikingly resembles his late brother, former president late Bingu wa Mutharika. At least based on the President’s inaugural and his first State of the Nation Address, Peter’s economic policy direction closely follows Bingu’s.

But perhaps the President will be judged differently from his brother if he will be able to achieve sustainable economic growth, effectively breaking the country’s vicious cycles.

Like brother, like brother

The President in his two speeches has promised a rapid economic growth of 7.5 percent for the next five years which is close to the elder Mutharika’s six percent GDP growth rate promised during his inauguration ceremony.

On how to achieve the feat, Peter’s policies just like Bingu’s revolve around subsidies, a stable exchange rate, domestic borrowing and low interest rates—some sort of Mutharikanomics.

And in his inaugural speech, Bingu like his younger brother, rallied his speech around instituting new systems of managing fiscal policy, public expenditures and infrastructure development.

But Peter who like his elder brother, took government when interest rates were high and the economy was experiencing unstable exchange rates perhaps needs the same tools to deal with the problems.

But strikingly apart from prudent fiscal and monetary policies, Bingu clearly believed in controversial subsidies, including the Farm Input Subsidy Programme (Fisp) for subsistence farmers something that Peter is also sticking to.

Regardless of some donors and economists being against Fisp, Bingu stuck to his guns which of course saw Malawi achieving food security from a miserable 1.2 million tonnes of maize in 2005, to 2.7 million tonnes in 2006 and to 3.4 million in 2007.

Today, like his brother, the President still believes the subsidy programme which the new government intends to improve by including a biometric system will uplift lives of the poor and ensure food security.

And apart from Fisp, the President said the new government will introduce subsidies on building materials—iron sheets and cement—for the poor, an indication of a stronger belief in subsidies.

Chronic national, household cycles

Malawi is full of cycles, vicious, unfortunately. From monthly inflation rates, national and household food stocks, forex reserves and exchange rates, household incomes and international trade, the country always moves up and down.

The result: Malawians always enjoy a stint of joy only to fall back to the bottom sooner than later.

It is typical for Malawi to have low inflation rates when food, including maize is readily available and rise again during lean periods when the country is going through tight food stocks.

Exchange rates which hinge on the availability of foreign exchange tied to tobacco sales will stabilise during the country’s green gold marketing season and take a dip after closure of the tobacco sales.

On the household level the situation is not different.

Take Ajussa Abiru, a salaried employee living in one of the cities. After getting his salary month-end, he only enjoys a stint and then goes back to borrowing cash or in kind, a situation which is common to many.

Farmers are even worse. After they have sold their produce, will usually wait for 12 months for their incomes, clearly a vicious cycle of poverty.

On a national scale, economic growth has followed cyclical growth rates. In 2005 after introducing the controversial subsidy programme and other policy changes, Malawi moved from a basket case to a food basket.

The economy picked up growing at unprecedented rates with the country’s GDP coming second to oil rich Qatar.

But the brilliant economic performance did not last. By end 2010, the economy started experiencing forex exchange problems that led to fuel scarcity.

In 2012, the economy after the enviable growth slumped to 1.8 percent GDP growth rate followed by a 4.2 percent growth in 2013, according to the World Bank.

Breaking the cycles

With the benefit of hindsight, what will possibly distinguish Peter from Bingu is the current government’s ability to break the cycles and achieve sustainable economic growth.

In his inaugural speech, Malawi’s new President clearly indicated that his government will implement policies that will turnaround the country’s economy to achieve a 7.5 percent economic growth rate for the next five years.

However, some local analysts have doubted the attainment of the economic growth rate, arguing there are a lot of things that are wrong in the country and have to be corrected before achieving that feat.

Speaking during his inaugural speech at Kamuzu Stadium in Blantyre, Mutharika said the government will take a bottom up approach that involves and directly benefits ordinary people.

Reminding Malawians how the previous Democratic Progressive Party (DPP) government grew the country’s economy between 2006 and 2010, the President said the new government will deliver a people-centred economic growth.

“After 50 years of attaining our independence, our economy is still fragile and marred by so many challenges. As a nation, we are still considered as one of the poorest countries in the world,” said the President, pointing out that our economy is currently performing poorly due to problems that have emanated from fiscal slippages.

So what exactly should be done to break the vicious cycles?

Achieving sustainable growth

Economic Empowerment Action Group (Eeag) president Lewis Chiwalo in an interview recently said the government should consider getting more involved in industrial development in addition to attracting Foreign Direct Investment.

He noted that because the government can invest in capital intensive projects it should resuscitate the country’s investment arms such as the Malawi Development Corporation (MDC) which will start up companies in contrast to waiting for the private sector to invest.

“We are aware of the policy reforms that are slated to be implemented including those that will change the doing business environment so as to attract FDI. I would however urge government to take an active leading role in investment, for instance, in the past we had MDC and Admarc Investment Holdings,” said Chiwalo.

He added that the government should also be disciplined in expenditure and domestic borrowing which are responsible for the recent high interest rates.

While economists have been quoted having warned the new government against unnecessary policy reversals, Chiwalo said the current government can salvage something from the Economic Recovery Plan (ERP) that was launched in 2012 by the Joyce Banda administration.

The ERP introduced the floating exchange rate and liberalised fuel and utility tariffs while focusing on five sectors including energy, tourism, mining, agriculture, transport and ICT.

And Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa said to achieve sustainable development, the government needs to balance social spending and economic growth generation.

“The support for any safety nets or indeed any subsidy should only be towards those well targeted, who indeed cannot afford goods and services at market prices. If any, these should utmost be designed in such a way that they will have a well crafted exit strategy and carefully help graduate those out of it into more productive citizens as much as possible,” he said.

On sustainable export-led forex generation, import substitution and export diversification, Kubalasa notes that there is need to synchronise them with the other development policies, including the National Export Strategy (NES), the ERP and the Malawi Growth and Development Strategy (MGDS II) as a packaged policy mix.

He added that issues around a professional and efficient public sector, the responsive exchange rate regime, and tax regime are all quite central.

In conclusion Kubalasa highlights that it is decisive and strategic actions on the policy mix in key policies which would curtail the vicious cycle still at play now.