Malawi: Mwanamvekha Says Govt to Curb Illicit Foreign Exchange, Issue Diaspora Bond

9 September 2019

Minister of Finance, Economic Planning and Development Joseph Mwanamvekha on Monday presented a 2019/20 budget in Lilongwe which many have described as an "inspiring" fiscal plan as he projected that Gross Domestic Product (GDP) will expand by 5% in 2019 and by 7% in 2020.

Finance minister Mwanamvekha presenting the budget: Malawi's economy to grow 5% in 2019, 7% in 2020

The budget, which several economic experts had swiftly welcomed as "inspiring", was themed "Inclusive growth and economic empowerment. The future we want."

Presenting his maiden fiscal plan in Parliament, Mwanamvekha said Malawi's economy grew 4% in 2018 and it had to activate a three-year $112 million loan facility from the International Monetary Fund (IMF) to shore up its finances as drought and slowing foreign donor funding began to bite.

Mwanamvekha projected the GDP growth rate of 5% in 2019 and by 7% in 2020 as the return of rainfall after severe drought boosts agricultural production,

"This Madam Speaker gives us a fiscalised growth rate of 6 percent for 2019/20 fiscal year," he said in the National Assembly.

Mwanamvekha said the expected "impressive growth" is on account of favourable weather conditions during the last growing season and the consequent spill over effects to other sectors in the economy.

He said Malawi's headline inflation is still in single digit lane at 9.3 percent and that it has been on a downward trajectory during the past three years.

The country's purse keeper said the forecasts indicate a continued decline to around 6.1 percent in the short to medium-term.

"This downward trend will largely emanate from the expected improvement in agricultural production, stable exchange rate and relatively low and stable international oil prices," he said.

Mwanamvekha also said gross official reserves have improved to an import cover of 3.7 months in June 2019 compared to 3.1 months in June 2018.

"This, Madam Speaker, gives confidence to the business community of continued supply of foreign exchange. It also prevents speculative tendencies in the foreign exchange market that usually leads to volatility in the exchange rate which can lead to macroeconomic instability," he said.

Mwanamvekha said government through the Reserve Bank of Malawi will continue to build up foreign exchange reserves in order to provide the economy with a required buffer to cushion against exogenous shocks.

He said government aim to achieve a target of 6 months of import cover by 2022 from the current 3.7 months of imports.

The Finance minister said in order to achieve this, government will continue supporting the Export Development Fund as "a vehicle for supporting efforts aimed at increasing the country's exporting capacity."

Mwanamvekha also said government will also intensify its efforts to curb illicit financial flows done through transfer pricing and illegal externalisation of foreign exchange.

He said such malpractices are depriving Malawi the much needed foreign exchange from its natural resources.

The Treasury Czar said government through the Central Bank will continue to courting Diaspora remittances through creating a Diaspora unity, information portal, issuing of Diaspora bonds and creation of various investment vehicles that promote short-term and long-term investments by the Diaspora communities.

He said it is government's belief that the measures will help to increase the country's foreign exchange reserves.

Immediate reaction from economic commentators, hailed Mwanamvekha said his measure in the fiscal plan will help the domestic economy attain macroeconomic stability.

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