LILONGWE- Malawi’s new government expects its aid-dependent economy to recover from a tailspin caused by a fight its former president picked with donors, but sees high inflation persisting due to a currency devaluation sought by the IMF for its assistance.
Finance Minister Ken Lipenga told parliament in a budget speech on Friday that GDP growth is projected to be 4.3 percent this year and 5.7 percent next year while inflation is expected to hit 18.4 percent this year and ease slightly next year.
Lipenga said while the government had been able to turn back on the aid taps, it was still seeking more international assistance. It would cut back on perks for bureaucrats and trips to save money.
“Grants from cooperating partners have increased by 140 percent reflecting renewed confidence in the new government of President Joyce Banda,” he said.
Former President Bingu wa Mutharika saw aid, which typically accounted for 40 percent of the budget, dry up due to diplomatic friction made worse when his police killed 20 civilians in anti-government protests a year ago. This resulted in international condemnation and plunged him deeper into isolation.
Mutharika, who died in April of a heart attack, slashed last year’s budget but the austerity coincided with a severe drop in tobacco sales, which usually account for 60 percent of foreign currency reserves and significant tax revenue.
Petrol, drugs and other items purchased abroad with hard cash grew scarce, with people lining up for days for a few litres of gasoline. Goods for the domestic market were sold over the border to earn foreign currency while inflation jumped and growth subsided.
Banda has improved human rights and reached out to donors, including Britain and the United States who froze multi-year aid packages worth a combined nearly $1 billion, to restore the flow of cash that helped prop up the $5.6 billion economy.
Her government scrapped its currency peg to the dollar in May at the request of the International Monetary Fund, causing the kwacha to lose about a third of its value and raising worries about inflation.
Since then, Britain has pledged to send millions of dollars in aid. The IMF and Malawi last week agreed to a 3-year, $157 million aid package.
Mutharika also made a good start. Farm support programmes helped the economy post annual growth of 7 percent between 2005 and 2010, turning the country of subsistence farmers into a food exporter.