Economic growth projected to fall to 1.9% in 2020 from an initial estimated growth rate of 5.5%

By Duncan Mlanjira

President Lazarus Chakwera told Parliament on Friday in his first State of Nation Address (SONA) that the country’s economic growth measured by the Gross Domestic Product (GDP), is projected to fall to 1.9 percent in 2020 from an initial estimated growth rate of 5.5 percent for the year compared to the 5.0% growth rate achieved in 2019.

He attributed this as due to the impact of political uncertainty and instability, occasioned by the rigged elections of May 2019, which triggered mass demonstrations countrywide.

He said these developments occurred from the onset of the fiscal calendar in 2019 and continued up until the second quarter of 2020.

“In the middle of it all, the economy was hit by COVID-19 and the shock of local and global containment measures,” he said.

“Predictably, the inflation rate has been declining, with headline inflation decelerating to an average of 8.9% in the second quarter of 2020, mainly due to the decline in food inflation after the improved maize production in the 2019/2020 agricultural season.

“Subdued industrial demand for maize due to COVID-19 restrictions, declining domestic fuel pump prices, and stable exchange rates also assisted in bringing down the inflation rate.”

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He added that annual inflation is projected to average 9.8% for the year 2020 on account of lower growth projections.

“The 2019/2020 fiscal year had a revenue of K1.527 trillion against a total expenditure of K1.841 trillion, which means the year ended with an estimated deficit of K315 billion.

“This deficit was financed in large part by domestic borrowing, which crowded out private sector from accessing financial resources for productive purposes.

“Further, there are arrears amounting to K169.4 billion originating from unpaid bills by Ministries, Departments, and Agencies of Government in the form of water and electricity bills, compensations from court cases, unpaid road construction works, and various suppliers of Goods and Services to the Government.

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He said accruing arrears is a weapon which the previous Administration used to stifle private sector growth and the health of parastatal utility companies and therefore unemployment in this country has reached unacceptable levels that led to Government to become source of temporary jobs for fresh graduates in the form of internships.

“When private sector operators and utility parastatals are constrained in this fashion, they cannot expand, neither can they create new businesses which should ordinarily be the principal sources of sustainable jobs for fresh graduates.

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“Cumulative public debt has resulted in total public debt stock of K4.1 trillion as at the end of June 2020, which is 59% of nominal GDP. Of major concern is that 57.3% of this total debt stock is domestic, representing 33% of GDP.

“In the past year alone, public debt increased by K430 billion. This position has resulted in interest charges reaching the region of 36.6% of GDP. In other words, for every K100 we generate, K36.60 is used to pay interest on the debt that we have accumulated, excluding repayment of the actual loan.”

By the end of June 2020, the President said the country’s trade deficit stood at US$887.98 million, which is an increase of 9.5% over the past year indicating that the country imported more goods and services than what was exported, by this amount.

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“Clearly there have not been appropriate policies to support the growth and diversification of exports. The foreign exchange that we used to import these goods and services almost exclusively came from donors in various forms, at the expense of providing the necessary support to existing and potential exporters.

“The foreign exchange position at the end of June was adequate at 3.27 months of import cover, but this is hardly a consolation.

“Considering that the number of tourists visiting Malawi has dropped due to international travel restrictions, we need greater cover.”

On the economic prospects for the year 2020/21, the President said the success of Malawi’s economy going forward will be anchored on solid institutional foundation.

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“We will not tolerate corruption nor will we interfere in the affairs of institutions fighting corruption,” he said. “We will observe the rule of law in order to provide predictability of the political and economic environment.

“We will provide the necessary security to all residents, be they natural or corporate persons and we will empower institutions of economic governance to service the needs of investors and all manner of business people and the general populace.

“We will continuously carry out public sector reforms in order to reorient public officers’ approach to work when offering service to the public. We will demand accountability by all public service position-holders to get the maximum value from them.

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“We will do this because we love our country and wish to restore confidence in our citizens, but also to give confidence to investors, both existing and prospective.

“My Administration is aware that there are some investment opportunities that may appear to be high risk, and yet their returns to the economy are also high, because they have potential for employment and new industry creation, new product generation, and technology upgrading.

“My Administration will not hesitate to lead the way in such instances. In some cases, we will work alongside private sector, and in other cases, we will work alone as trailblazers, without taking opportunities away from the private sector.

“This is what we mean by a developmental state,” said the President.

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