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Posted on Friday, 27 November 2015 11:00

Malawi Country Profile 2015: With victory comes a poisoned chalice

By The Africa Report

Flag Malawi

Peter Mutharika's narrow victory in the hotly contested elections of 20 May 2014 may turn out to have been the easy part in a country so troubled by corruption and food insecurity.

 

Without the restoration of donor support – and the severe strings attached – the economy will continue along the troubled path that had begun under the rule of his brother, the late Bingu wa Mutharika, from which it hardly recovered during the two-year rule of Joyce Banda, who had promised radical change. The 75-year-old Washington State University constitutional law professor scraped through the elections with only 36.4% of the votes.

His Democratic Progressive Party took 49 seats in the 193-member parliament, leaving independents and other parties holding the rest. He has found a useful ally in the United Democratic Front of Atupele Austin Muluzi, with its 14 seats.

In October, Mutharika held talks with some opposition parties in order to build a wider base of support for the government's programme. The opposition has started a debate about the decentralisation of power and is calling for Malawi to implement a policy of federalism.

Cashgate fallout

Mutharika inherited a series of problems from Banda. Her efforts to woo donor support had involved a major devaluation of the kwacha, which sent commodity prices soaring. However, revelations of a major corruption scandal in 2013 meant that the donor funds that had just started trickling in were again withheld.

The so-called Cashgate affair resulted in the arrest of at least 70 people to answer theft, fraud, corruption and money-laundering charges. Donors reacted by pulling the plug on earmarked budgetary support of $150m.

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Mutharika and finance minister Goodall Gondwe have very little fiscal space to manoeuvre because of domestic liabilities amounting to 67% of total expenditure. The 2014/2015 budget deficit stood at 14%, the inflation rate exceeded 25% in 2014, with interest rates higher still.

Most observers expected the Mutharika administration to raise taxes, but it was clear that he did not want to expend his shaky political capital so soon after a narrow election. Mutharika has looked for other ways to shore up the tattered public finances. For instance, his government has more than doubled fees for drivers' licences, vehicle certificates and fines for traffic offences.

Mutharika complained that donors have not been clear about what would lead to the resumption of aid. Key donor countries and agencies adopted a wait-and-see attitude.

The group that includes the World Bank, African Development Bank, the EU, the UK and Norway will only rethink the decision to freeze the budget if the government strengthens public finance control systems. The government planned to agree a new programme with the International Monetary Fund before the end of 2014.

Plus ça change...

Western donors will want to know if the new Mutharika is different, or – more importantly – better than Bingu, who so firmly resisted undertaking economic reforms. There have been few signs of radical reform and the current cabinet and team of advisers comprise almost all the politicians and technocrats who worked with Bingu.

Mutharika does not have the luxury of time as he tries to improve relations with donors. With 120,000 civil servants demanding a 50% salary increase that the government can ill afford, newspapers have reported on critical shortages, such as of drugs in public hospitals.

One of the few glimmers in the gloom comes from forecasts of continuing economic growth at above 6% in 2014 and 2015. The agricultural sector managed 6% growth in 2013, with tobacco sales up more than 100% on the previous year.

For 2014, there were early forecasts of a revival in maize, rice and pulses thanks to favourable weather and the farm input loan scheme. The country's 2002 food crisis demonstrated that Malawi's agricultural advances can be fragile.

The government's economic priorities for 2015 include agricultural diversification and attracting investment for the Nsanje inland port. Landlocked Malawi said it will not got to war but would also not negotiate in its dispute with Tanzania about the borders of Lake Malawi.



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