Malawi, one of the world's poorest countries, is watching the global financial storm with a great deal of unease, uncertain what effect the credit crunch will have on a national budget that is more than 40 percent donor-funded.
The small southern African country of 13 million people - whose profile has been raised in recent years by Madonna's celebrity patronage and current messy divorce proceedings - fears its major donors will batten down their hatches and sacrifice aid budgets in the interests of their own financial health.
Governments in the US and European Union, in a bid to stave off a repeat of the 1930s Great Depression, have diverted trillions of dollars of public money into their ailing banking systems, and Malawi and other developing nations are asking the same question: will there be any money for us left in the kitty?
"The downturn in the international economy could affect future levels of development funding. However, it is too early to assess the impacts of this on countries like Malawi," David Rohrbach, the World Bank's acting country manager for Malawi, told IRIN.
"We do not see any immediate impact on funding, given that most projects and country allocations are made several years in advance, and expect that all existing commitments will be met."
Rohrbach said some donors were committed to funding special initiatives, such as those designed to help developing countries cope with sharp increases in global food and fuel prices.
"Malawi, as with many African countries, is somewhat insulated from the turmoil in international capital markets. However, international capital flows may tend toward less risky investments over the next few years," he said.
"This suggests the need for Malawi to continue to improve its business environment, while maintaining control over the level of domestic debt and the fiscal balance."
No country left unscathed
World Bank president Robert Zoellick cautioned recently that "The financial shock waves in the United States and Europe will reverberate in the global economy."
''The financial shock waves in the United States and Europe will reverberate in the global economy''
Developing world finance ministers have asked the World Bank and the International Monetary Fund (IMF) to draw on the "full range" of their resources to cushion the effects of any fallout from the financial crisis on their economies, but one thing is certain: a global recession or a prolonged tightening of credit will curtail gross domestic product (GDP) growth.
An IMF survey in October projected that growth rates in sub-Saharan Africa would slow to 6 percent in 2008 and 2009, down from 6.5 percent in 2007, and noted that "recent heightened turbulence raises the risks, including a decline in resource flows to Africa in the form of private capital, remittances, and even aid."
Malawi's finance ministry spokesman, Ephraim Munthali, told IRIN that donors had not given any indication that aid would be reduced as a consequence of the global financial turbulence, and that the country's economic agenda remained on track.
"Over the past four years, Malawi has sustained an average growth rate of more than 7 percent, well above the 6 percent benchmark necessary to meaningfully reduce poverty," he said.
"During the same era, the country has, for the first time ever, successfully completed an economic programme with the International Monetary Fund, stabilised the once-volatile kwacha [local currency], tamed inflation to within single digits, and slashed the benchmark bank rate to record lows."
Malawi's GDP growth forecast for 2008 has been revised upwards from 7.4 percent to 8.7 percent, attributed to robust performance by the agriculture sector, especially the tobacco industry, as well as growth in manufacturing and financial services.
Macroeconomic stability
Munthali said the Malawian government had reduced domestic debt stock from 25 percent of GDP in 2004 to 11.5 percent in 2008.
"If you add to that K10 billion of domestic arrears left behind by the previous administration, but which the current government has regularised, you will see how hard the authorities have worked to neutralise the debt problem. In fact, even the amount of money spent relative to GDP on the repayment of domestic interest from the budget has dramatically fallen," he said.
In 2004 the Government spent about 9.2 percent of GDP to repay domestic debt interest. This was more than the combined expenditure on education, health and agriculture in the 2003/04 budget. In 2007 domestic interest payments were 2.4 percent of GDP, and are projected to slide to 2.2 percent of GDP in 2008.
"These are massive savings being ploughed back into the economy, which show that the measures taken by this government as regards domestic debt, by controlling borrowing drastically, have led to a vast fiscal improvement.
"The Government is particularly happy with this performance, which is translating into better living standards for Malawians. As recent studies have revealed, Malawians are better off today than they were in 2004, or in 1994 for that matter; that is progress, that is development and that is success," he said.
Niels Buenemann, IMF's Malawi spokesman, told IRIN that the Breton Woods institution had disbursed about US$25 million in 2008 to assist the country in meeting a larger-than-expected balance of payments deficit flowing from higher fuel and fertiliser prices.
An IMF mission to Malawi in September 2008 said in a statement that the reduction in public debt, both domestic and external, since 2005 had generated savings of about 4 percent of GDP in debt-servicing costs, making more money available for poverty reduction and high-priority spending activities.
"The mission discussed with the authorities the implications of the recent sharp increases in fertiliser prices in the fertiliser subsidy programme," the IMF statement said.
"The IMF team agreed with the government's intention of meeting any spending increases in the fertiliser programme though a combination of increased support from donors, improvement in domestic revenue performance, and spending restraints elsewhere in the budget."
No comments:
Post a Comment