Malawi Spotlight

Two years of El Nino pain should ease. Within hours of being announced as the new Governor of the Reserve Bank of Malawi last week, Dalitso Kabambe was setting out an ambitious growth target of over 6% per year as a key route to meaningfully pressing down on domestic poverty. It was unlikely that his remarks were a coincidence given that the recent 2015/16 drought and poor maize harvest underpinned a critical rise in food shortages while also pulling economic growth down from an average of nearly 5% over 2010-14 to 3% and 2.3% in 2015 and 2016 respectively.

Reasons for optimism. The improved rainfall outlook should drive a rebound in agricultural output, which accounts for over 25% of GDP, and prompt a pickup in overall activity to around 4% this year, with the risks tilted to the upside. At the same time, the robust monetary stance of the RBM and external food-related support have helped to stabilise the kwacha and press on inflation, which fell from 23.5% in July of last year to 15.8% in March and which looks set to reach single digits by the end of 2017.

IMF pressure? The current IMF Extended Credit Facility Programme expires in the summer and the mood music from the Fund is that it wants to see demonstrable progress on fiscal consolidation, after a deterioration in the budget deficit to nearly 8% of GDP last year, before even considering any further support. The new RBM Governor was previously Budget Director in the Ministry of Finance and will need all his contacts and residual influence within the Treasury to ensure that the Fund's tap remains connected.