SA-based chief economist Chifipa Mhango offers Chakwera 5-straight action plan to win back confidence of IMF

Chifipa Mhango, very much revered in his host country

* Consequences of not having ECF support from IMF for Malawi has serious economic and political stability implications

* For it may negatively affect provision of health services, education, as well as overall macro-economic stability among others

By Duncan Mlanjira

Following the decision by the International Monetary Fund (IMF) to put on hold talks over a new extended credit facility (ECF) with Malawi until a resolution is made on the country’s debt sustainability situation, seasoned economist, Chifipa Mhango has proposed to President Lazarus Chakwera a 5-straight action plan to win back the confidence of international lenders, such as the IMF.

While Minister of Finance, Sosten Gwengwe told the nation that discussions with the IMF on the new ECF are ongoing and hopes Malawi will be able to satisfy the requirements set to access the facility, Chifipa Mhango — who has over 25 years of experience — proposes:

1. A fast-paced and aligned economic policy implementation that is also based on fiscal prudence approach;

2. A decisive action on issues of Governance and alleged corruption without fear or alleged politicisation;

3. A re-commitment to the Constitution of Malawi and its people in defining Government development agenda that is broadly inclusive of all to reduce poverty and inequality, as per IMF goals in its lending criterion;

4. 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; and

5. Seek the support and input of broader constituency of stakeholders for action based solutions on the economy of Malawi.

He maintained that “the consequences of not having ECF support from IMF for Malawi has serious economic and political stability implications for the country — for it may negatively affect provision of health services, education, as well as overall macro-economic stability among others”.

“As it is defined through the profession I love the most, which is of being a practising economist for 26 years, mine is in good faith-based approach that I offer the advice on the economy of my beloved country, Malawi; based on reliable data and facts, as sourced from various credible institutions.”

Chifipa Mhango, who holds a Bachelor of Social Sciences degree in economics, accounting and statistics from the University of Malawi and a Master of Commerce degree in economics and econometrics from the University of Stellenbosch,” says he remains committed to his country and wishes best wishes to Chakwera and his entire Government “as we seek long-term solutions for our beloved country”.

In his preamble, Chifipa Mhango quoted the IMF on its determination that said: “Access to ECF financing is determined on a case-by-case basis, taking into account the country’s balance of payments need; the strength of its economic program and capacity to repay the Fund; the amount of outstanding Fund credit and the member’s record of past use of Fund credit, and is guided by access norms”.

“Mr President, I would like to bring your attention once again to an updated economic landscape of Malawi, based on my previous letter to you of 10th January 2022, to which some of key parameters the IMF tracks, and at times forms the basis of their determination to granting the credit facility as outlined above.”

He highlighted that Malawi’s Gross Domestic Product (GDP) was worth US$12.63 billion in 2021, as according to official data from the World Bank, saying the GDP value of Malawi represents 0.01% of the world economy.

“The economy of Malawi advanced by 3.8% year-on-year in 2021, from 0.9% in the previous year, which was the softest pace of growth since 2001. Although GDP growth rate figures have suggested being above 4% in recent years, with the exception of 2020, this remains on paper, as poverty continues to engulf the majority of the Malawians, with growing inequality.”

The respected economist added that GDP per capita in Malawi was last recorded at US$394.18 in 2021 — equivalent to 3% of the world’s average, saying “the GDP per capita continues to decline — thus meaning less is being produced in the Malawi economy per person to survive”.

“In a country with an estimated total population of 19.1 million people, unemployment rate suggest an increase to 7%, the highest in a decade, thus according to latest figures, to which at Malawian level, translates to massive poverty for its people.

“The high cost of living in Malawi are being reflected in the latest consumer inflation data, that reflects annual inflation rate in Malawi rising to 24.6% in July of 2022, the highest since December of 2015.

“Of key concern; is the rising cost of food, transport and housing utilities cost at 32.5%, 128.4% and 113.6% respectively — that’s hitting on the poor and middle-class. This means ordinary Malawians are being squeezed financially to provide for their families on a daily basis and are becoming worse-off as each year and month passes.”

He further says although the interest rate environment is at relatively low levels of 14%, “not many ordinary Malawians have the ability to access the much needed business loans through the traditional banks or Development Finances to support their dreams of addressing their poverty situation”.

“With regard to Malawi trading position, the balance of trade reflects a worsening deficit, with the country operating in a deficit for a decade. This translate to Malawi not being able to accumulate enough foreign exchange revenue for the country through international trade, as the country trade position is skewed towards importing than exporting.

“This also translates to an economy not able to take advantage of international trade arrangement such as AfCTA to generate the much required revenue to support the development endeavours of its economy and the people at large.”

Chifipa adds that Malawi, therefore, “is not able to rely on its own resources currently, hence continues to borrow from the international markets and rely on donor support, with the IMF and the World Bank remain imperative to its development programmes”.

“Malawi Government Debt to GDP is estimated at 51% of the country’s Gross Domestic Product. This debt has to be paid from what Malawians are producing eventually, no matter how small the level of GDP per capita.

“The fiscal revenue, which is not growing in line with expenditure, from the narrow sources of corporate and personal income tax set at 30% — coupled with sales tax of 16.5% among others — is not enough to sustain the growing Government appetite towards expenditure.

“The level of Government spending demonstrates an increasing appetite to spend recklessly, with monthly fiscal expenditure of MK267 billion just in April 2022 alone, from revenue of MK140.7 billion. The question that still comes to mind is whether this increase is productive spending or wasteful expenditure?

“When it comes to Global competitiveness, Malawi is still scoring below 50%, which reflects a country lowest ranked when it comes to competing internationally for investment.

“This means, the ability to attract the much-needed productive fixed investment into the economy on the massive scale is being eroded.”

When it comes to Governance as reflected in the corruption index ranking, Chifipa rates Malawi as remaining as a star performer, with global ranking of a high order.

“Malawi is the 110 least corrupt nation out of 180 countries, with a latest score of 35 points out of 100 on the 2021 Corruption Perceptions Index reported by Transparency International.

“The effectiveness and capacity to deal with alleged corruption cases and its alleged selective approach to the justice system could also be a major determination for the IMF decision,” said Mhango — who has worked as chief economist at ArcelorMittal South Africa for seven years and as senior economist and head of strategic research and planning at the Industrial Development Corporation for nine-and-a-half years.

He has also worked as chief economist at PetroSA; as chief research director and partner at Kwesthuba Consulting Ltd; as Director of research and strategy at Don Consulting Group as well as executive head of strategy, business planning and communication at Nedbank Ltd.