Country Report January 2003 Malawi Malawi at a glance: 2003-04 OVERVIEW Presidential and legislative elections are not due in Malawi until June 2004, but attempts to amend the constitution to permit the president, Bakili Muluzi, to stand for a third presidential term will dominate the political agenda. An IMF team has completed its mission in Malawi and commented that Malawi has failed to meet its fiscal targets, owing to unauthorised spending. The IMF board is expected to discuss the team’s findings and is unlikely to resume funding unless the government displays evidence of having reined in expenditure in the first half of 2003. Real GDP growth is expected to edge up to 2% in 2003 and 2.6% in 2004, following a contraction of 1.3% in 2002 caused by drought. The fiscal deficit will remain high, at 6.8% of GDP in 2003/04 ( July-June) and 7.4% of GDP in 2004/05, owing to overspending. Key changes from last month Political outlook • John Tembo, the vice-president of the main opposition party, the Malawi Congress Party, and his supporters have withdrawn their support for the third-term bill as relations between Mr Tembo and Mr Muluzi have deteriorated. • Two MPS of the ruling United Democratic Front have broken ranks and withdrawn their support for the third-term bill. Economic policy outlook • An estimated US$8m has been illegally siphoned off from the state budget to pay for non-existent workers. This has caused the fiscal deficit to increase and the government has thus failed to fulfil the conditionalities imposed by the IMF. Therefore, the government will have to rein in its spending in early 2003 if the IMF is to resume funding under Malawi’s poverty reduction and growth facility. • It is vital that Malawi adheres to the IMF conditionalities, not only so that funding can resume, but also so that Malawi will be entitled to debt relief under the heavily indebted poor countries initiative. Economic forecast • The Economist Intelligence Unit’s growth forecast remains unchanged from last month, even though we have reduced our forecast for global growth. January 2003 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. 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Malawi 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2003-04 7 Political outlook 9 Economic policy outlook 10 Economic forecast 13 The political scene 19 Economic policy 23 The domestic economy 23 Economic trends 25 Agriculture 27 Infrastructure 27 Foreign trade and payments List of tables 10 International assumptions summary 13 Forecast summary 19 Press freedom index, 2002 20 Fiscal performance, 2002 22 Telecoms indicators List of figures 13 Gross domestic product 13 Kwacha real exchange rates 23 Inflation 24 Money supply Country Report January 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 Malawi 3 Summary January 2003 Outlook for 2003-04 Although presidential and legislative elections are not due in Malawi until June 2004, attempts to amend the constitution to permit the president, Bakili Muluzi, to stand for a third presidential term will dominate the political agenda. The Economist Intelligence Unit is forecasting that, given its greater nationwide organisation, the ruling United Democratic Front (UDF) will win both the parliamentary and presidential elections. It is also highly likely that Mr Muluzi will be permitted to stand for a third term in office. An IMF team has completed its mission in Malawi and noted that Malawi has failed to meet its fiscal targets owing to unplanned expenditure. The IMF board is expected to discuss the team’s findings and it is unlikely to resume funding unless expenditure is reined in during the first half of 2003. Real GDP growth is expected to edge up to 2% in 2003 and 2.6% in 2004, following a contraction of 1.3% which was caused by drought. The fiscal deficit will remain high, at 6.8% of GDP in 2003/04 (July-June) and 7.4% in 2004/05, owing to election-related overspending. The political scene The October 15th-November 1st parliamentary session ended without the tabling of a bill that, if passed, would have permitted the president to serve for three (instead of two) consecutive terms, because the UDF was unable to gather the requisite support. John Tembo, the vice-president of the largest opposition party, the Malawi Congress Party (MCP), and leader of the largest faction of the party, withdrew his backing for the third-term bid leaving the UDF far short of the two-thirds majority needed to get the bill passed. Equally worrying to the Muluzi camp was the increasing independence shown by some members of their own party: two UDF MPs openly withdrew their support for Mr Muluzi’s candidacy. Economic policy The IMF mission to Malawi has expressed serious doubts about the government’s commitment to controlling its fiscal deficit and the IMF is unlikely to resume funding until there is some evidence that this has occurred. This is of particular concern, as Malawi needs to provide evidence that is has successfully completed a year under the IMF’s poverty reduction and growth facility if it is to qualify for debt relief under the IMF-World Bank’s heavily indebted poor countries initiative. The domestic economy Higher food prices, owing to shortages, caused year-on-year inflation to rise to 16.5% in August, from 16.1% in July. As expected, the kwacha began its seasonal slide as the tobacco auctions closed and farmers purchased inputs, such as fertiliser, for next year’s crop. Foreign trade and payments The World Bank approved a US$50m emergency drought recovery credit for Malawi on November 5th 2002. This will be used for famine relief. Editors: Ravi Bhatia (editor); Pratibha Thaker (consulting editor) Editorial closing date: December 12th 2002 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report January 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 4 Malawi Political structure Official name Republic of Malawi Form of state Unitary republic Legal system Based on English common law and the constitution, promulgated in May 1995 National legislature National Assembly of 193 seats, elected by direct universal suffrage for a five-year term National elections June 15th 1999 (presidential and legislative); next elections due by June 2004 (presidential and legislative) Head of state President, elected by direct universal suffrage for a term of five years; Bakili Muluzi was re- elected for a second and constitutionally final term in June 1999 National government Cabinet, chaired by the president; a new cabinet was named on November 5th 2000 and reshuffled in January 2002 Political parties United Democratic Front (UDF), the largest single party in the National Assembly; Malawi Congress Party (MCP), the main opposition party; Alliance for Democracy (Aford), Malawi’s third party. Smaller parties not represented in the National Assembly include: the Malawi Democratic Party (MDP); Malawi National Democratic Party (MNDP); Mass Movement for the Young Generation (MM); National Unity Party (NUP); National Patriotic Front (NPF); United Front for Multiparty Democracy (UFMD) President & commander-in-chief of the armed forces Bakili Muluzi Vice-president