By Deogratias Mmana
The International Monetary Fund (IMF) says Malawi’s 2019 macroeconomic outlook is positive.
IMF has disclosed this in its November 2018 Country Report No. 18/336.
The report gives Malawi’s first review under the three year extended credit facility arrangement and requests for modification and waivers of nonobservance of performance criteria.
Among others the report highlights positive outlook on inflation, growth rate and recommends that automatic fuel pricing should be forcefully implemented.
“Growth is expected to rebound to 4.0 percent in 2019 reflecting increased electricity generation and growing infrastructure investment. Over the medium term, growth is projected to reach around 6.5 percent assuming improved irrigation infrastructure and cropping techniques (including diversification to cassava and sweet potatoes) enhanced electricity generation, better road and telecommunications networks, increased donor assistance, and greater access to finance for the private sector,” reads the report.
Inflation is anticipated to remain in single digits while the current account gradually improves.
“Inflation is projected to moderate to 8.9 percent in 2019 in line with a gradual reduction in food prices and to around 5 percent over the medium term owing to tight fiscal and monetary policies and further declines in food prices as well as reduced international fuel prices,” the report says.
It adds that the current account deficit is expected to gradually narrow towards 7.5 percent of GDP and international reserves rise to around 4.5 months of prospective imports supported by strengthened competitiveness, export diversification and fiscal restraint.
IMF observes that risks are tilted to the downside.
The assessment is that in the election run-up, political pressures could weaken policy and reform implementation.
Intensified governance challenges could further postpone donor support.
“These risks combined with adverse weather, infestations, and worsened terms of trade, could weigh on growth, raise inflation, and increase balance of payments pressures. Tighter global financial conditions and weak global growth could depress export growth and reduce donor financing. On the upside, faster reform implementation and higher export prices could boost medium term growth,” reads the report.
IMF recommends that the automatic fuel pricing mechanism should implemented more forcefully to contain fiscal risks.
Under this mechanism, which eliminated government subsidies, import price changes outside a plus and minus 5 percent threshold trigger domestic price changes. Any changes within the threshold are absorbed by the Price Stabilisation Fund.
However, since October 2016, the PSF has been subsidizing fuel distributors for almost all price changes. To safeguard the PSF, Petroleum and diesel prices were increased this year. Staff urged the authorities to regularly implement the automatic pricing mechanism and to increase transparency by disclosing the PSF’s financial statement.
Staff and the authorities agreed that changes to the fuel import regime should also be transparent and include stakeholder consultations.rm measures to end blackouts.
“The short term measure is the use of generators, and power purchase from
Mozambique and Zambia, while medium term includes the completion of Kamwamba
and Kapatamanga electricity sites and the long-term measure will include discussion
with Mozambique, Zambia and Tanzania on interconnection,” said Masi.
JCM Power Malawi Country Director, Phylip Leferink said that
development of energy is important for the country as it affects growth of other sectors.
Leferink thanked Mutharika for the new energy policy which is allowing private
operators to invest in the sector.
‘We are thankful that the country has created an enabling environment for investors to
invest in the sector good for investors and it so good that we have the power purchase
agreement with Escom has been concluded,” said Leferink.
Leferick also asked President Mutharika to continue supporting the JCM as it
implements the project.
“We promise to work with speed and to complete it in the soonest time. My appeal is
for the president to continue supporting the project as we conclude it,” said Leferink.