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Country Report Malawi Malawi at a glance: 2005-06 OVERVIEW The president, Bingu wa Mutharika, faces considerable opposition in parliament from his former party, the United Democratic Front (UDF), and the largest party in parliament, the Malawi Congress Party (MCP). Despite the gathering of substantial support behind Mr Mutharika’s newly formed Democratic Progressive Party (DPP), the president does not have majority support, and the passing of the 2005 budget and IMF-guided reform legislation are at risk. The most likely scenario is that some MCP members will ultimately realise the importance of passing these bills, as much-needed IMF and donor financial support is at stake. Key changes from last month Political outlook • Should mounting opposition in parliament persistently block Mr Mutharika’s legislative programme, fresh elections may be called—which Mr Mutharika would be expected to win, given his current popularity. The UDF and the MCP are attempting to hold impeachment proceedings against the president, but their case is weak and they are unlikely to succeed. Economic policy outlook • The 2005 budget presented to parliament in June is consistent with policy objectives recommended by the IMF, notably raising spending on health and education. It is also a strongly expansionary budget, fuelled by a projected pick-up in donor financial support, but the extent of the expansion appears overambitious. The Economist Intelligence Unit expects that, after strenuous debate in parliament, the budget will be passed. We estimate a deficit of around 2.5% of GDP. Economic forecast • Recent drought conditions point to a large forecast contraction in agricultural production in 2005, and we have therefore revised our forecast for real GDP growth for the year from 2.2% to 1%. A steady rise in economic confidence and a recovery in agricultural production is expected to lift growth to 4% in 2006. The current-account deficit has also been subject to some adjustments in line with forecast lower tobacco exports: the deficit is now forecast to rise to 16.5% of GDP in 2005 (from our previous forecast of 9.6% of GDP), before easing to 13% of GDP in 2006. July 2005 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2005 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 1478-0283 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Malawi 1 Contents Malawi 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2005-06 7 Political outlook 8 Economic policy outlook 10 Economic forecast 12 The political scene 17 Economic policy 24 The domestic economy 25 Agriculture 28 Financial and other services 28 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 19 Government finances 20 Sub-Saharan Africa: HIV/AIDS prevalence in selected countries, 2004 24 Inflation 27 Tobacco production 27 Cumulative tobacco sales to May 26th, 2005 29 External debt List of figures 12 Gross domestic product 12 Consumer price inflation 24 Inflation 25 Exchange rate, 2005 Country Report July 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005 . Malawi 3 Malawi July 2005 Summary Outlook for 2005-06 The president, Bingu wa Mutharika, will concentrate on strengthening support for his newly formed Democratic Progressive Party and on countering attempts by the United Democratic Front (UDF) and the Malawi Congress Party (MCP) to block his reform agenda in parliament. However, the MCP is ultimately expected to yield sufficient support so that the bulk of the IMF-recommended economic reform policies can be passed through parliament during 2005-06. Real GDP is estimated to have increased by 4.2% in 2004, but an expected poor harvest will slow real GDP growth to a forecast 1% in 2005, before a recovery in agricultural production lifts growth to 4% in 2006. High international oil prices will exacerbate the effects of a poor maize harvest, causing the average rate of inflation to increase to 15% in 2005, before easing to 9.5% in 2006 as oil prices decline and maize crops improve. A decline in tobacco exports is expected to cause the current-account deficit to increase to 16.5% of GDP in 2005, before a recovery in tobacco production in 2006 reduces the deficit to 13% of GDP. The political scene Mr Mutharika’s nomination of Mary Nangwale as inspector-general of the police has been rejected by the UDF and the MCP. The two parties have indicated that they are likely to engage in a fierce battle with the government over the approval of the budget for the fiscal year 2005/06, and have continued their attempts to have Mr Mutharika impeached, although Mr Mutharika is expected to triumph in both cases. The president has sacked his education minister, Yusuf Mwawa, for corruption, and investigations have started into possible corruption by other allies of the former president, Bakili Muluzi. Economic policy The IMF has endorsed the government’s performance under the first nine months of the staff-monitored programme, and discussions are under way for a new poverty reduction and growth facility. The finance minister, Goodall Gondwe, has presented a fairly expansionary 2005 budget to parliament—the spending priorities are broadly in line with the IMF’s principal objectives. The domestic economy According to recent data, year-on-year inflation rose to 15.5% in May, up from 15.3% in April, reflecting food shortages caused by the poor 2005 harvest. Foreign-exchange shortages have ended the local currency’s recent stability. Foreign trade and payments According to recent World Bank data, Malawi’s external debt rose to US$3.1bn at the end of 2003, due mainly to cross-currency re-evaluations as the US dollar weakened. A number of donors have resumed financial support to Malawi. Editors: Nicola Prins (editor); Pratibha Thaker (consulting editor) Editorial closing date: July 1st, 2005 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report July 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005 4 Malawi Political structure Official name Republic of Malawi Form of state Unitary republic Legal system Based on English common law; constitution promulgated in May 1995 National legislature National Assembly of 193 seats, elected by direct universal suffrage for a five-year term National elections May 2004 (presidential and legislative); next elections due by May 2009 (presidential and legislative) Head of state President, elected by direct universal suffrage for a term of five years; Bingu wa Mutharika was elected in May 2004 National government Cabinet, chaired by the president; a new cabinet was named in June 2004 following the May election Political parties Until February 5th the ruling United Democratic Front (UDF) held an alliance with the Republican Party, the Alliance for Democracy (Aford), the National Democratic Alliance (NDA) and the Movement for Genuine Democratic Change (Mgode), creating a majority as a bloc; since Mr Mutharika’s resignation from the UDF on February 5th a considerable realignment of parties has taken place, and it is not yet clear who the majority coalition will be; the Malawi Congress Party (MCP) remains the largest single party in the National Assembly; smaller parties include the People’s Progressive Movement; the Congress for
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