Country Report Malawi December 2008

Outlook for 2009-10

• The May 2009 elections will be hotly contested by the three main political parties and their presidential candidates, with none expected to secure an outright majority.
• The opposition Malawi Congress Party (MCP) will have an advantage if it can secure an ally in the Northern region, dominate its Central region stronghold and benefit from the Southern region being split between its opponents.
• A new IMF programme is expected to be agreed that will continue to prioritise macroeconomic stability and structural economic reform.
• Donor support is expected to pick up over the forecast period following the passing of the 2009/10 (July-June) budget, although any debacles with future budgets will lead to disbursements being delayed again.
• Expansion in uranium production will lift real GDP growth to 8.3% in 2009, but in 2010 slower growth in mining and agriculture will lead to a fall in GDP growth, to 3.5%.
• Lower global oil and food prices will see average inflation fall to 8.4% in 2009, outweighing the impact of election-related spending. In 2010 further falls in food prices and lower government spending will reduce inflation to 7%.
• The current-account deficit is forecast to narrow from 11.9% of GDP in 2009 to 11.5% of GDP in 2010, as the trade deficit narrows.

Monthly review

• The ruling Democratic Progressive Party has held primary elections to select candidates for the 2009 legislative election. However, tensions led to violence at some of the primaries, and some candidates plan to stand as independents.
• The MCP has endorsed John Tembo as its presidential candidate but his running mate has not been announced, amid speculation that the post is to go to another party leader as the MCP aims to forge an electoral alliance.
• The exchange rate has been very stable, despite volatility in many regional currencies; this suggests that the central bank has restricted the supply of foreign exchange as reserves remain under severe pressure.
• Inflation edged up to 9.4% year on year in October, from 9.3% in September, as both food and non-food inflation continued to rise. Malawi has not made major cuts in domestic fuel prices, and the food crops lean season has begun.