Economic performance making no dent on poverty - report

Malawi's lacklustre economic performance will have to improve dramatically if the lives of its 11 million people are to be bettered, according to a United States Agency for International Development (USAID) report. 'Economic Performance Assessment: Malawi' was compiled by Nathan Associates Inc. for USAID, and based on an examination of key economic and social indicators, including growth, poverty levels (65 percent of Malawians live below the poverty line), and access to healthcare and education. "Rapid and broad-based growth is the most powerful instrument for poverty reduction. At the same time, measures to invest in human capital, reduce poverty, and lessen inequality help to underpin rapid and sustainable growth. These interactions create the potential for a virtuous cycle of economic transformation and human development," the report pointed out. However, "the data analysis for Malawi reveals serious problems in numerous areas, and few signs of healthy performance. Overall, Malawi urgently needs to follow through on recent efforts to strengthen macroeconomic management, as a starting point, and to take serious steps toward further improvement of the enabling environment for private sector development," the researchers commented. "This will entail deeper reforms, control of corruption, infrastructure investment, and better health and education programmes, within the limits sets by very scarce resources," they added. With an estimated per capita GDP of just $165 in 2004, the country has remained one of the poorest in the world. "The need for rapid and sustained economic growth is acute. Yet, over the past five years, growth has averaged just 1.2 percent per year, never exceeding 4.0 percent," the researchers pointed out. This meant that "in absolute terms, growth is far too low to deliver improved standards of living or adequate income opportunities for a population that is growing by 2.1 percent per year". To progress towards prosperity, the country had to achieve a sustained and "broad-based growth of no less than five percent". This was the central economic challenge facing the government and the donor community. "One vital question that must be asked ... is whether the political foundation exists in Malawi for achieving rapid growth. Is there the political will for sound economic policies and institutions? Is there an effective constituency for effective pro-growth policies? How can these be strengthened?" the authors asked. Rafiq Hajat, director of the Blantyre-based Institute for Policy Interaction, believes the political will does exist. "In the previous session's budget, 90 percent of the pro-poor expenditure that was in the budget had actually been utilised, and it had probably the highest [budget allocation]. So, there is the [political] will, and it tallies with political survival - if you can improve the lot of poor people at grassroots level, your political survival is assured," Hajat said. According to the report, since 2002 the government had "demonstrated new resolve to rein in excessive expenditure and bring inflation under control" - a vital requirement for stimulating economic growth. However, "even with strong revenue mobilisation and improved public expenditure management ... Malawi is too poor to afford vital expenditure programmes without major support from the international community," the report added. In terms of curbing state expenditure, Hajat said "it will take at least four to five years to do this, as it requires a paradigm shift; a change of culture within ministries and the civil service that cannot be achieved overnight". With regard to improving the country's economic performance, Hajat noted that the fair trade agenda was an issue that needed to be highlighted. "Has Malawi ever, historically, received fair terms of trade? When the American farmer is paid $4.15 for a kilogram of tobacco - which is out of favour in America anyway - and that figure is highly subsidised, why do American companies pay Malawi farmers $0.17 cents per kilogram? "How is a tiny landlocked country like Malawi ever going to sustain itself? So, before we get to macroeconomic policy, we need to talk about fair trade," Hajat stressed. He pointed out that tobacco sales accounted for 76 percent of Malawi's foreign currency earnings. "Maybe, instead of aid we should be getting a fair price - if we got $2.50 per kilogram of tobacco, it would give us balance-of-payments surplus. We don't have a cake to share, let alone [the ability] to share it properly," Hajat concluded. Macroeconomic management problems have prevented Malawi from qualifying for Poverty Reduction and Growth Facility (PRGF) concessional loans from the International Monetary Fund (IMF). According to a recent IMF statement, the government has made good progress in "demonstrating its commitment to sound macroeconomic policies" and talks regarding a PRGF arrangement were underway. View the full report at: www.sarpn.org.za