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A spotlight on Malawi’s economic trajectory

Image: [Lameck Masina/VOA]

Malawi’s economy has, of late, proven to be on the right trajectory, evidenced by the six indicators on the country’s economic landscape. As Arthur Chokhotho writes, public observation and assessment on economic transformation indicates that notable advancements have been realized in the past 3 months since the Ministry of Finance and Economic Affairs executed a plan known as Recover Develop and Protect the economy, (RDP) which is said to be bearing fruit.

The last quarter of 2023 saw the economy of Malawi in tatters with little hope of recovery. The period saw the appointment of Simplex Chithyola Banda as the new Minister of Finance and Economic Affairs and he came with an agenda dubbed ‘Walking together towards economic transformation’ aimed at taking the narrative of the country’s economy to the populous. The Economy was characterized by unsustainable debt levels, with more debts maturing as compared to what the country could generate, resulting in a perpetual deficit. Economists also noted an appalling situation in the wake of unsustainable debt with fears that defaults could lead to loss of market access and higher borrowing costs, thereby harming growth and investment.

To address the problem, the Ministry of Finance and Economic Affairs identified four major areas signifying deficiency called FOUR F’s. These are forex, fuel, food, and fertilizer. The acute shortage of forex created a gap between the official policy rate and the parallel rate.

Long queues in fueling stations had become the order of the day. During the same period, the country saw skyrocketing prices including food inflation. And there were heightened uncertainties on where to get fertilizer.

As a solution, government initiated a recovery plan to develop and protect the economy – called R.D.P.  On the recovery aspect, the treasury embarked on debt management, restructuring, and negotiations.  It had also put into effect reforms and realignment of government programs to tally with international standards, a development that resulted in the implementation of what the government called tougher, difficult but necessary decisions which saw the Kwacha currency devaluing by 44 percent.

On development, the government focused on economic development and growth by exploring new avenues of injecting into the economy.  These include labour export, the golden visa initiative, and enhancing mining and carbon trading. Further to that the government employed fiscal discipline by cutting down on expenditure and ensuring to prioritize programs that have economic value while focusing on value addition on locally produced commodities.

On the Protection aspect, the government developed a watertight legal framework to deter abuse on the country’s economy.

It is hence after implementing the RDP plan that six indicators of economic recovery are noticed.

The first one is that forex is now available, standing at 100 million United States Dollars in the country’s foreign reserves as of end of February, which is enough to see the country through for three months.

Secondly, fuel supply has been constant and we are no longer witnessing lengthy queues in the country’s fuel stations.  The third indicator is that food inflation is also going down.  As we speak, the price of maize has been steadily going down; from K50,000 per 50 kilogramme bag of maize over the past three months to an average K40,000. Malawi’s qualification for the International Monetary Fund’s Extended Credit Facility (ECF) comes in as the fourth indicator, as it is based on reforms and the realignment of government programmes to meet international requirements.

The fifth indicator is based on what Malawi has realised from the Israel labour export deal, with over 400,000 US Dollars (approximately K1.04 billion) remitted in the first month and over 700,000 US dollars (close to K2 billion) in the second month. The 6th indicator of economic recovery is the resumption of Direct Budgetary Support by the World Bank, with an initial approval of 137 million United States Dollars (K232 billion) of budget support for Malawi.

Secretary to the Treasury Betchani Tchereni has tipped Malawians to observe the operations of ADMARC, the mining sector, and prospects on Mega farms as being pivotal to further economic transformation.

He is optimistic that the reduction in food inflation will be amplified in the next three months, with initial pointers springing out in March 2024.

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