Usaid economist tips Malawi on ERP
United States Agency for International Development (Usaid) chief economist Steve Radelet has tipped Malawi how it can swiftly recover its ailing economy.
A former senior adviser for development for US Secretary of State, Radelet said tight fiscal and monetary policy implementation, increasing agriculture productivity and improving the general business environment are enough to turn around the struggling economy.
Radelet, a fellow at the Harvard Institute for International Development, was speaking on Sunday in Malawi’s capital, Lilongwe, in an exclusive interview on a variety of issues surrounding Malawi’s macro and microeconomic front.
His tips come in the wake of Malawi Government implementation’s of the Economic Recovery Plan (ERP) as an attempt to resuscitate the economy currently dogged by high interest rates, a runaway double-digit inflation rate, a record low projected gross domestic product (GDP) growth rate of 1.6 percent and a yawning trade gap, among other indicators.
“The challenge for Malawi is that there are no easy choices. Any choice is difficult and every action requires sacrifices and disappointments,†said Radelet, a former economic adviser to the president of Liberia.
While describing the ability to recover the economy within 12 to 18 months as feasible, but tough, he explained that Malawi must ensure a tight budget execution and let the exchange rate keep floating to determine its price.
Radalet said Malawi needs to be aggressive in creating a smooth business environment and remove red-tape for potential investors in the next few months.
He described Malawi’s recent slip on World Bank’s Ease of Doing Business 2013 (DB13) report to 157 from 151 out of 185 economies as a big blow to its economic recovery efforts.
Commenting on recent reforms by the Joyce Banda administration, Radelet recalled that prior to the reforms Malawi was dealt a heavy blow by a severe foreign exchange drought that made it impossible to import critical goods.
He said the fixed exchange rate was ‘impossible’ to sustain as it fuelled smuggling of different commodities outside the country, adding that some banks even opted to keep their foreign exchange outside the country and only brought them back after economic reforms in May this year.
“China is able to do that [fix its currency against other currencies] because it is sitting on three trillion reserves in dollars. Experience has shown that once you run out of forex, the best way is to float it and let the prices be determined by market forces,†he added.
The ERP has put more focus on five sectors namely; energy, tourism, mining, agriculture and transport infrastructure and information and communication technology (ICT) as anchoring sectors.
The plan has also embraced a set of immediate, short and medium term policy reforms aimed at restoring the external and internal economic stability.
According to International Monetary Fund (IMF), macroeconomic stability is critical to recovering the economy, ‘but is not sufficient’ for a sustained recovery and promoting broad based and inclusive growth.
