* Exactly a year later on since the much publicized open letter Mhango penned on September 13 2022; Did President Chakwera listen?
Its exactly a year on since South Africa-based Malawian highly respected economist, Chifipa Mhango wrote an open letter to President Lazarus Chakwera on September 13 in reaction to the position of the International Monetary Fund (IMF) to reject an application for an Extended Credit Facility (ECF) for Malawi.
Mhango, who is Chief Economist and Director of Economic Research & Strategy for South African firm, Don Consultancy Group, writes: In the communication, which was copied to his Vice-President Dr Saulos Chilima and media houses in Malawi, I outlined the performance of some of the key economic parameters which in essence, the IMF tracks as a measure of good or bad performance.
Based on the analysis, I also brought in the position the IMF took on Zambia’s application and in high-level highlighted the areas that convinced the IMF to grant Zambia an approval for its 38-months arrangement under the ECF.
I also brought to the attention of President Chakwera the key areas that require urgent redress which mainly related to Governance issues on the agriculture subsidy programme, level of corruption in the country, fiscal expenditure & revenue concerns, economic policy position and its implementation concerns, Government borrowing concerns, as well as monetary policy framework and position thereof.
In conclusion, I proposed to President Chakwera a 5-straight action plan to win back the confidence of international lenders such as the IMF at that time, to put back the Malawi economic on a strong economic growth trajectory path.
A year later, this is where Malawi’s key economic indicators performance is, in relation to what was presented in my analysis of September 2022, using available trusted data sources based on latest information:
1. The Gross Domestic Product (GDP) in Malawi is still around 13.16 billion US dollars — that’s according to official data from the World Bank. The GDP value of Malawi still represents 0.01% of the world economy. This is the status that Malawi economy has maintained despite a growth rate of 5.4% in 2022. What this means is that for the economy the size of Malawi, these are not the growth rates that can really support poverty alleviation, because to the size of the economy, this represents minimal expansion. As such, poverty will continue to engulf most of the masses of Malawians, especially those in rural areas.
2. According to latest data, the Gross Domestic Product per capita in Malawi was last recorded at US$554.20 dollars. The GDP per Capita in Malawi is equivalent to 4% of the world’s average. Again, this number is concerning despite showing some improvement, as at the global level, Malawi’s ability and capacity to produce per person is significantly lower than other nations, putting the country in a most vulnerable situation economically.
3. Malawi has an estimated total population of 20.4 million people — according to World Bank report — and unemployment rate suggested at 5.6%, which is open to debate, when one relates to massive poverty and visible inequality on the ground. A latest report by Malawi Government presented this year, suggested that Malawi has almost 91% of its working population as unemployed, which is more realistic.
4. The cost of living in Malawi as measured with latest consumer headline inflation rate data reflects the highest levels in 10 years, with latest data number of 28.4%. Of concern to the Malawian consumers is the continuing rise in cost of food, transport and housing utilities cost. Latest Food inflation rate currently is at 39.3%, up from 33.7% in September of 2022, thus presenting challenges for most Malawians to provide for their families daily, a worsening position from last year.
5. Coupled with the rising inflationary pressures in the Malawi economy has been a challenging monetary policy environment, with the Bank lending rates from the Reserve Bank of Malawi rising from 14% in September 2022 to current levels of 24%, representing 1000 basis points increase. This has squeezed consumers and businesses that depend on borrowing from Retail Banks to realise their dreams of borrowing to own a home or support business expansions or other operations.
6. On Malawi trading position, latest data, shows a worsening trade deficit position from last year September 2022 environment, with current indication of MK193.5 billion in deficit. This means that the Malawi economy’s ability to accumulate enough foreign exchange revenue for the country through international trade continues to be eroded, as the country trade position continues to be skewed towards importing than exporting, thus cementing the position that the country is an import consuming economy.
7. Malawi’s latest Government debt to GDP was estimated at 51%, despite other experts locally putting the figure at a much higher level of 60% during year 2022 analysis. The latest available data now puts this figure at 66.7%, with other local Economic experts indicating an even higher figure of over 70%. This is very concerning, as it reflects a worsening situation on Malawi Government debt level position.
8. A positive development on the Malawi fiscal position is the decline in fiscal expenditure being observed since June 2023, as per latest data, with July 2023 showing Malawi fiscal expenditure of MK226 billion, which is also lower than the September 2022 figure of MK236.5 billion.
This is to be applauded. On a similar note, is the rising fiscal revenue position since May 2023, with fiscal revenue rising from MK184.9 billion to MK246.7 billion in July 2023, an even higher figure from the September 2022 level of MK168.8 billion. It remains to be seen as to whether this rise is due to improved revenue collection efficiency, although it can be noted that Personal Tax was increased from 30% to 40% during this period under review.
9. On the Global Competitiveness index, Malawi remains below 50 index point, which reflects one of a lowest ranked country when it comes to competing internationally for investment. This means, the ability to attract foreign direct investment into the economy is a challenge, several factors are at play here, such as Economic performance, Government efficiency, Business efficiency and Infrastructure such as energy availability, roads and railway.
10. The challenges of governance as reflected in the corruption index ranking remain in Malawi. The country is still ranked at 110 out of 180 countries, with a latest score of 34 points out of 100, which is a marginally worsening position from the previous 35/100 Corruption Perceptions Index reported by Transparency International.
The Global Corruption Barometer survey for Malawi indicates that 72% of people thought that corruption increased in the previous 12 months from the last survey. The ineffectiveness and lack of capacity to deal with increasingly alleged corruption cases, with major cases still outstanding or delayed prosecution is part to the problem Malawi is currently facing.
Based on the above key economic parameters as presented above with data, I would summarise the Malawi economic performance with recommendations as follows:
a) The size of the Malawi economy is still small, and more policy interventions are required to support new investment into the economy, with new ventures in the mining, agriculture, manufacturing and massive investment into the infrastructure/construction space required at faster paced approach to expand the size of the economy, and address the challenges of poverty, inequality and unemployment.
b) The rising cost of living in the country are a major concern especially when the food component continues to be highly elevated in prices. Expanding the production base and adoption of new farming technologies, while also increasing the agro-processing side of the economy would support food supply, thus dealing with the food component of inflation, to also offset imported food inflation.
c) On the interest rates level, the current levels are relatively high for a Malawi economy, a model based on inflation targeting policy, utilising the current inflation rate target range of 5% may not be ideal for a developing economy like Malawi, to which most of its inflation could be imported based on the trading and consumption patterns. There is a need for a policy review on this front.
d) Malawi is still an importing nation, with its trade favouring imports. This can only be addressed through an investment drive into value added production, moving away from exporting of unprocessed products and identification of more export markets through bilateral strategic approach as well as taking advantage of existing regional trading blocs.
Malawi can also expand its agriculture production, especially direct food items and processed foods into new markets such as South America and Asia. More mining products exports can also support to improve the trade position, while also encouraging mineral beneficiation locally through foreign direct investment.
Malawi can generate for forex through trade while saving forex through an expanded investment into the economy through an import substitution.
e) The level of Government debt to GDP is worrisome. It is imperative that under the leadership of Dr Lazarus Chakwera, Government should take a closer look at what type of debt the country is incurring and focus more on utilisation of such debt towards productive investment into the economy which adds value into the economy such as railway connectivity and road infrastructure connecting to markets or leading raw materials to industrial zones, as well as energy production expansion to support industry activity. This would also improve Malawi’s Global Competitiveness Index.
f) Corruption perception on Malawi remains concerning and Malawi Government should drastically seek a redress with a visible action approach. Recent actions seem to give a perception of selective justice, something that is not presenting a right image for the country.
g) On a positive note, a bold move to address the challenges of fiscal expenditure should once again be applauded, if the data presented is accurately presented as sourced internationally with the Reserve Bank of Malawi as the original source. This declining trend in fiscal expenditure should be encouraged, especially if there is an improved efficiency in Government as well as expenditure cut on wasteful and unproductive areas. The same goes to the fiscal revenue increasing trend in recent months.
If I am to mark the current performance of the Malawi economy under the 10 areas as outlined above, the rate would be 40% out of 100%. The direction is right but more needs to be done.
If I am to analyse based on the 5-Straight Action Plans that were presented in the open letter of 13th September 2022, the view would be as follows:
i. A fast-paced and aligned economic policy implementation that is also based on fiscal prudence approach. Fiscal expenditure declines and fiscal revenue improvements shows some actions were taken, however, economic policy alignment at Government department levels needs redress.
ii. A decisive action on issues of Governance and alleged corruption without fear or alleged politicisation This is an area of concern, as the corruption index level has worsened since last year 2022.
iii. A re-commitment to the Constitution of Malawi and its people in defining your Government development agenda that is broadly inclusive of all to reduce poverty and inequality, as per IMF goals in its lending criterion.
The policies are right on paper and verbally as presented, however, a coordinated approach is required with a reduced silo mentality and mindset change. Ie the moto should be “It can be done even in Malawi” Dr Napolean Dzombe case should be used to inspire the nation.
iv. De-politicisation of the key civil service appointment model with a merit-based approach guided by a performance-based contract approach, taking a quarterly review approach on Key Performance Indicators (KPIs) to ensure delivery.
This is a prolonged problem of Malawi, and it would require addressing the society trust deficit in which only those supporting a governing political party are trusted with positions. It needs political maturity to achieve.
v. Seek the support and input of broader constituency of stakeholders for action-based solutions on the economy of Malawi. This area is a concern currently, as there is a need to formalise the process and create a quarterly platform of engagement to which there is monitoring and evaluation as well as input provision to the right Government channels.
It requires a matured democracy to implement. However, starting on a smaller scale is ideal. It should be noted that, organising Malawi Investment Forums in Malawi and also in Johannesburg, South Africa this year 2023 was a major milestone.
If I am to rank President Chakwera, I would put it at 3 out of 5 on implementation of the 5-Straight Action Plans. He may need to be more decisive in approach in some areas.
If I can quote and paraphrase from former President Peter Mutharika: “Running Government is a serious business”. Surely, His Excellency President Lazarus Chakwera would agree that indeed being in opposition benches is not the same as running Government, for the challenge to please every constituency and stakeholders such local masses and international donor partners can present conflicting positions.
Our responsibility as citizens in our various fields, be it economists, lawyers, medical doctors, farmers, business, academics etc, is to play a constructive role in the development of the country and ensure that our dreams and aspirations are being met through any governing political party leadership through policy implementation.