Reserve Bank of Malawi sticks to 5% growth prospect

post was last updated: May 17, 2019

By William Kumwembe:

Reserve Bank of Malawi (RBM) has maintained its five percent economic growth projection for 2019, despite the International Monetary Fund (IMF) lowering its forecast to four percent in the aftermath of Tropical Cyclone Idai.

RBM reiterated in its second Monetary Policy Report for May 2019 that it also remains committed to a five percent inflation objective in the medium term.

“The current forecasts have taken into account the GDP growth projection of 5 percent for 2019 driven mainly by good prospects for agriculture outturn,” RBM says.

Second-round crop estimates show that the floods only affected 1 percent of the initial projection of 3.4 million metric tonnes (mt) of total maize production.

This is against a national maize requirement of 3.1 million mt, indicating that there will be maize surplus; hence, maize prices will be lower.

As such, the central bank says no pressure is expected on maize prices.

The forecasts further assume a stable exchange rate in 2019.

Gross official reserves were seen at $771.1 million (3.7 months of the import cover) as at end of first quarter of 2019, than $663.2 million (3.2 months) recorded in March 2018.

Private sector reserves were also higher at $313.8 million (1.5 months of imports) as at end March 2019, compared to $132.9 million (0.8 months) in March 2018.

In the near term, both private and official reserves are projected to further build up with the onset of the agriculture marketing season.

“To maintain stability of the exchange rate and satisfy market demand for forex, interventions will be undertaken to build up reserves during the tobacco-marketing season and offloaded [sic] to the market during the lean period,” reads the RBM report.

The baseline forecasts also continue to assume fiscal overrun in 2018/19 of equal magnitude to those experienced in the 2017/18 budget.

This is because of the envisaged relatively heightened compulsory and / or statutory expenditures and a buildup in interest rate payments.

In a recent interview, Economics Professor at Chancellor College, Ben Kalua, said, while attaining a five (and above) percent GDP growth was possible this year, the question rests on attaining sustainable economic growth.

“We need to have a strategic vision of growing the economy systematically. No matter who comes in as a political leader, they should align their ambitions to the overall national plan.

“We need priority infrastructure, including railway, water way, communication network; these things are primary and should be intact and in solid position,” Kalua said.

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