Minister of Finance, Economic Planning and Development Goodall Gondwe has justified rebasing of the country’s GDP, saying it will ensure that sectors previously ignored are incorporated in the national accounts.
The minister said in an interview on Sunday that many things are happening in the private sector, but are not recorded formally when calculating gross domestic product (GDP), the total value of all final goods and services produced within a country.
“If we include those, our GDP will be much bigger than now,” said Gondwe, observing that it is unfair to say that Malawi is a small economy as most economic activities are not taken into account when calculating national wealth.
Rebasing GDP means changing the base year when calculating the nominal GDP at current market prices and Malawi has been using 2010 as a base year.
But analysts believe nine years down the line, the economic landscape is now dynamic and has changed, necessitating a corresponding change in the way the country calculates its GDP.
“Nigeria recently rebased its economy and because of that it has a bigger economy in Africa,” said Gondwe.
In 2014, Kenya, Nigeria, Tanzania, Uganda and Zambia all rebased their respective economies, a situation which led to significant revaluations of their GDP.
In the Mid-Year Budget Review Statement on Friday, Gondwe also spoke about rebasing the GDP, saying they will adopt a methodology that will allow the country to capture economic activities even from the informal sector as other countries do as well as information on government projects.
In a written response yesterday, Institute of Chartered Accountants in Malawi (Icam) chief executive officer Francis Gondwe, while observing that the move may help bring out the right perspective about the size of the economy and help spur foreign direct investment, advised government to come up with strategies that will positively impact the lives of the people.
He said having a higher GDP figure is meaningless when citizens are wallowing in abject poverty.
Said Gondwe: “At present, a great deal of economic activity is informal and not recorded, which gives a distorted view of the size of the economy. This would, among other things, help government to boost its revenue collection from fees and taxes.”
In February, local investment and advisory firm Alliance Capital Limited cautioned the use of GDP as a measure of economic performance, saying there are issues of distribution, industrialisation and employment which must also be considered if economic growth is to be meaningful.
Traditionally, Malawi has used the GDP as a measure of economic growth which was initially developed in the United States in early 1930s.
This year, government is projecting the economy to grow by seven percent, banking on good rains expected to boost agricultural output.
Government annual economic reports from 2011 to 2017 indicate that in the seven-year period, Treasury had been revising downwards growth projections.