Country Report Malawi July 2009

Outlook for 2009-10

• The Democratic Progressive Party (DPP) secured a parliamentary majority in the May 2009 elections, which should help to alleviate the political inertia that has crippled policy making in the National Assembly since 2004.
• International donors are expected to maintain their commitment to Malawi, although this could waver if the country's economic policy were to go off track.
• The post-election budget of 2009/10 will focus on meeting the new government's election pledges, pushing up current spending at the expense of development spending.
• The Reserve Bank of Malawi (the central bank) is expected to lower interest rates towards the end of 2009, as inflationary pressures ease further, and will continue on this path in 2010.
• The economy will continue to grow at a fairly rapid pace. A bumper harvest and the expansion of uranium production will underpin GDP growth of 7.7% in 2009, before growth slips to 5.3% in 2010.
• The kwacha is looking increasingly overvalued, which is unsustainable in the light of Malawi's low foreign-exchange reserves and high import demand, and is forecast to depreciate to MK155.1:US$1 in 2009 and MK179.2:US$1 in 2010.
• The current-account deficit is expected to narrow from 8.5% of GDP in 2008 to 7.3% of GDP in 2009 and 5.4% of GDP in 2010, assisted by uranium exports and weaker import growth.

Monthly review

• The post-election cabinet reshuffle has seen a number of senior ministers either demoted or removed from the cabinet.
• The reshuffle suggests that positioning is already underway in the race to succeed Bingu wa Mutharika as president. Peter Mutharika, the president's brother, was named as minister for justice and constitutional affairs.
• President Mutharika has restated his determination to maintain the kwacha in the band of MK139-143:US$1, where it has resided for the past two years.
• The headline rate of inflation fell to 8.7% in May, down from 9.2% in April, mainly owing to a fall in food prices caused by the onset of another favourable harvest.
• The Ministry of Agriculture expects another bumper maize crop in 2009, with latest estimates suggesting that production will reach 3.4m tonnes. However, prices have so far disappointed.

Source: Country Report