Maravi Express
In spite of the continued negative impact of the CoVID-19 pandemic because of timely and effective Government interventions, the Malawi economy is estimated to have grown by 3.0% in 2021, up from 0.8% in 2020.
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This was said by President Lazarus Chakwera his State of the Nation (SONA) address in Parliament today, February 3, under the theme “Fixing Economic Systems to Deliver Long-term Priorities and Diffuse Short-term Pressures.
He said amongst many of the CoVID-19 interventions, the Affordable Input Programme (AIP) “led to improved output in maize and other subsidised agricultural commodities which boosted the growth of the agricultural sector in general”.
It also improved energy production following the commissioning of the Solar Farm in Salima, and the rehabilitation of Tedzani Power Station and Nkula Power Plant that contributed to the gross domestic product (GDP) growth both directly and indirectly through boosting manufacturing and irrigation activities.
As well as the Government interventions to contain the spread of CoVID-19, including vaccinations, also contributed to the rebound of the economy.
Chakwera and Mozambique President Nyusi commissioning Malawi-Mozambique power interconnection at Phombeya
On monetary performance, Chakwera said the significance of the rate of inflation “tells consumers how much the cost of living has risen by”that does not mislead the consumers through “the rise in the price of one or two commodities”.
“I am the first to admit that the cost of living has gone up, which is reflected in the jump in annual average inflation from 8.6% in 2020 to 9.3% in 2021 — but this rise originated from the increase in the landed cost of fuel following the rise in global demand as economies began to rebound.
“The weakening of the Malawi Kwacha against major trading currencies like the United States Dollar, as a result of reduced export proceeds and drying taps of donor assistance, also contributed significantly to the rise in average annual inflation.
“Additional factors creating inflationary pressures are supply chain related, such as long queues of containers of goods waiting to unload, shortage of labour, and lack of critical inputs for most products.
He went further to say that while the annual average inflation has increased, the annual average food inflation actually dropped from 13.0% in 2020 to 11.4% in 2021 — “on the back of a bumper maize harvest last season, a demonstration of the impact of the AIP in macroeconomic management”.
“At the same time the annual average non-food inflation, which is significantly but not exclusively dominated by imported inflation, rose from 4.7% in 2020 to 7.4% in 2021, clearly reflecting the effects of external shocks.
“Overcoming most of those shocks requires fixing the systems for building domestic productive capacity. That is our goal.”
The Reserve Bank of Malawi
On Foreign Exchange, Chakwera said its availability to facilitate imports declined in 2021 owing to reduced inflows of export proceeds from Malawi’s traditional exports of tobacco, tea and sugar, as well as from emerging export prospects.
“The decline was principally caused by the impact of CoVID-19 on Malawi’s export destination countries as well as CoVID-19 related restrictions on movement of goods and persons between and within countries.
“The impact of the reduced export earnings was not only felt through unavailability of foreign exchange on the market and depreciation of the Malawi Kwacha, but it also translated into reduced income, and therefore wealth, along the value chains of all export commodities.”
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He added that the impact of the depreciated Kwacha was evidently felt in the surge in prices of imported commodities as manifested in the rise in annual average inflation, thus further reducing the capacity of citizens to afford a stress-free lifestyle.
“Donor inflows into the country have been slowing since 2013, and the year 2021 was no exception, especially as donors prioritised addressing the impact of CoVID-19 on their own economies. As a result of these two major developments, Gross Official Reserves in December 2021 covered only 1.72 months of imports compared to December 2020’s import cover of 2.75 months.”
He reminded the august House that in his May 12, 2021 SONA, he announced that his Administration had “fully embraced the mining sector not only as a catalyst for restructuring the economy, but as a source of foreign exchange as well”.
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“Gold mining presented itself as a low hanging fruit. I am now pleased to report that the Reserve Bank of Malawi (RBM), which was designated to be the sole domestic buyer, to address the challenge of illegal gold exportation, has already managed to purchase 58.1 kilograms of gold valued at US$3.2 million in only six months.
“While this may seem like a small contribution to foreign exchange earnings, it gives us confidence that we have taken the right direction in diversifying our sources of foreign exchange.
“To further increase our forex earnings from gold, our plan is to reach at least 1.5 metric tonnes in gold purchases within the next three years. Similarly, the Central Bank will within the first half of 2022 commence purchasing gemstones, all of which will have a positive impact on forex revenue and exchange.”
He said the need for forex reinforcements is self-evident as during the year 2021, the Malawi Kwacha appreciated against the South African Rand and the Euro but depreciated against the United States Dollar and the British Pound.
“In fact, the Kwacha closed the year at MWK816.40 against the United States Dollar from MWK770.84 at the close of 2020, reflecting pressure from demand on the available supply of foreign reserves.”
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The rate of interest on money borrowed, Chakwera said, “is one of the determinants of the pace at which an economy develops because it represents the cost to the borrower of the capital borrowed”.
“The rate of interest is even more significant in Malawi as all three of my Administration’s priorities require investment of resources beyond what many people can save on their own.
“The support of the financial sector for these priorities is therefore needed. That is why throughout 2021 the Reserve Bank of Malawi maintained an accommodative Policy Rate of 12.0 percent, especially in view of the need to continue supporting economic recovery from the impacts of CoVID-19 pandemic.
“As a result of this policy stance, the Community, Social and Personal Services, comprising mostly individual and household loans, dominated credit uptake, signifying the need for cushion from the effects of CoVID-19.
“With respect to economic sectors, the Wholesale and Retail Trade Sector borrowed the most, followed by Agriculture, Forestry, and Fishing Sector, and the Manufacturing Sector as a distant third. As Government, we will ensure that the Wholesale and Retail Trade Sector is trading mostly in locally produced and manufactured goods as espoused in our implementation plans of Malawi 2063.
