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MALAWI: Global economic shocks send tremors through the country

23 Jan 2009 18:21:43 GMT
Source: IRIN

JOHANNEBSURG , 23 January 2009 (IRIN) - Malawi has become the first recipient of the International Monetary Fund's Exogenous Shock Facility (ESF), designed to ameliorate adverse economic conditions beyond a country's control.

Malawi - one of the world's poorest countries, but which is also enjoying one of the world's highest growth rates - was hit hard by high fuel and fertiliser costs that reduced its import cover to about five weeks in September 2008.

This was despite being "buttressed by the seasonal concentration of tobacco proceeds [a major foreign currency earner] in April-September," said the IMF Request for a One Year Exogenous Shocks Facility Arrangement Staff Report, published on 21 January.

On 3 December 2008 the IMF approved a one-year US$77.1 million loan, of which US$51.4 million was available immediately.

Although world oil prices have dropped sharply with the onset of a global economic downturn, "the negative effects of the earlier price hikes will persist over the next few months, because current imports of oil and fertilisers were contracted at earlier high prices," Takatoshi Kato, the IMF's deputy managing director and acting chair, said in a statement.

The ESF was modified in November 2008, making it easier for low-income countries to access the facility. Repayments begin five and half years after the money has been disbursed and the loan has to be repaid in 10 years at an interest rate of 0.5 percent.

Victor Mbewe, Malawi's Reserve Bank Governor, said in the capital, Lilongwe, on 19 December that although the global financial market crisis was unlikely to directly affect Malawi, it would "manifest itself in a reduced demand for our exports in the coming year [2009], which will in turn affect the country's economic growth and poverty reduction efforts."

Inflation ticked up to 9.9 percent in December, from 9.6 percent in the previous month, according to Malawi's National Statistical Office (NSO), while food inflation was running at 8.1 percent.

The NSO attributed food inflation to a scarcity of maize, the staple food, in parts of the country, while local media reports said some communities had run out of maize and were relying on wild fruits.

In the wake of a severe drought in 2005, Malawi introduced a subsidised fertiliser programme that resulted in a maize crop about 73 percent higher in 2007 than the average for the past five years, according to President Bingu wa Mutharika's government. In May 2008, the government announced yet another surplus of 500,000 mt.

The country requires around two million tonnes of maize annually to feed its population of over 12 million.

However, according to a study by the US-based Michigan State University in late 2008, there was a possibility that inaccurate crop estimates had encouraged higher maize exports, which had exacerbated food insecurity in Malawi and neighbouring Zambia.

"There is some evidence of a potential food crisis emerging in Zambia and possibly Malawi in early 2009, not because of world food price levels, but because of potential physical shortages, which are likely to send maize prices sharply higher over the coming months," the study said.

Should the forecast be accurate, rising maize prices and shortages would be experienced during elections scheduled for May 2009, in which both Mutharika and his arch rival, former president Bakili Muluzi, will be contenders.

The IMF's Kato said it was important that Malawi enhance its fiscal discipline, and that "spending pressures will need to be resisted, particularly in the run-up to the May 2009 elections."

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