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IMF trims Malawi Growth forecast

 

The International Monetary Fund (IMF) has trimmed the country’s GDP growth forecast for 2018 to four percent against government’s forecast of 4.5 percent, a development analysts say will lessen investor confidence and decrease private sector activity.

The new forecast is contained in the IMF April 2018 World Economic Outlook (WEO), which puts Malawi alongside Tanzania, Ghana, Burkina Faso, Uganda, Botswana, Zambia, Cameroon, Mauritius, Sierra Leone, Mozambique, Tunisia, Lesotho and Angola among economies with deteriorating growth in their real gross domestic product (GDP) growth projection for 2018.

In a written response to a questionnaire on Monday, IMF resident representative Jack Ree said the forecast is close Reserve Bank of Malawi’s (RBM) estimate of about four percent, which will be on account of irregular rainfall pattern and the spread of fall armyworms.

The projected four percent growth is a drop from 5.1 percent chalked in 2017, which was a rebound from a subdued 2.7 percent growth in 2016 driven by above average agricultural yield in 2016/17 growing season.

On the other hand, the Economist Intelligence Unit (EUI) has put this year’s growth forecast at 3.6 following a reduction in 2018 maize harvest forecast.

Ree said the 2018 growth means that while economic recovery will continue this year, it will take some more time for growth to get back to its full medium-term potential.

He said given that final crop estimates are yet to be released, it is too early to nail down this year’s growth number which is largely based on agriculture output.

Said Ree: “That said, IMF’s growth estimate tends to be on the conservative side, especially in countries with an IMF programme as it is safer to build in growth rate that is well within reach than be surprised on the positive side.

“This [growth forecast] reflects the effects of suboptimal rain patterns this maize season and delayed resolution in power shortages.”

He said expectation on the growth rate of between six and seven percent is based on the confidence on the back of macroeconomic stability and structural reforms which are premised on the new Extended Credit Facility (ECF) programme.

In March, Treasury revised downwards the 2018 growth projection to an average of 4.5 percent. Initially, Treasury had projected a six percent growth rate for 2018.

This fiscal year, growth prospects have been dealt a big blow largely due to the combined effects of dry spells, fall armyworms that is expected to cut output and incessant power outages that continues to affect revenue collections by Malawi Revenue Authority (MRA).

In the half-year, undercollectionof revenue amounted to K45.9 bilion of which K38.1 billion was tax undercollecton and K7.8 billion was non-tax revenue undercollection.

But Minister of Finance, Economic Planning and Development Goodall Gondwe said with a number of economic measures that will elimate power outages, tax collection in the second half of 2017/18 fiscal year  would yield about K70 billion more than what collected in the first half.

The minister said the country is expected to receive budget support of K60 billion from the World Bank in the second half, which could push total revenue and grants to K1.13 billion, which is higher than originally budgeted at K1.12 billion.

Catholic University dean of social science Gilbert Kachamba said in an interview that the country still has potential of doing much better, but the future looks bleak.

“We are making little progress but we have potential of doing much better,” he said.

In its March 2018 economic review, Nico Asset Managers said risks to economic growth include insufficient power supply, which will lead to lower productivity and dampen economic growth; high government debt levels; global oil price increases; persistently weak export base and high population growth rates, which could reduce per capita income. n

 

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