National Economic Council of Malawi

The report discusses economic developments that have taken place in February, 2002. In particular, the report reviews the fiscal and monetary developments. It also covers inflation and exchange rate developments and the food security situation prevailing in the country.

2.0 Food Security

The food security situation at the moment is very bad in the country. There are long queues at ADMARC markets as people rush to buy maize at K17 per kilogram as opposed to the local markets where prices are very high. Local market maize prices continued to rise during the month as the peak of the hunger season was being approached. Some markets reported prices as high as MK40 per kilogram which is beyond the affordability levels of the majority of the poor households. On the other hand, livestock prices continued to drop as households desperately sell their animals to obtain cash to buy food or exchange directly with food.

As at the close of February 2002, a cumulative figure of 80,626 tonnes of maize imported from South Africa had been delivered in the country while about 17,000 tonnes was still in transit. Out of the maize delivered, 48,588 tonnes were sold in the Southern Region, 23,128 tonnes in the Central Region and 8,910 tonnes in the Northern Region. The European Union (EU) and World Food Programme (WFP) had also distributed approximately 1,733 tonnes comprising 1,283 tonnes in the Southern Region and 450 tonnes in the Northern Region.

The first round crop production estimates show that all the crops will register an increase in production. Maize production is expected to register a 16 percent increase from 1,713,064 metric tonnes last year to 1,989,505 metric tonnes this year. The projected maize production level may just be enough to feed the country. However, the crop is threatened by pre-mature harvesting as a result of the tight food security situation at the moment. Looking ahead, there is nothing on the horizon to suggest that the food access situation is likely to improve much in the next year even with a good maize harvest. There is need for people to change eating habits so that other food crops, such as cassava, are accorded the same importance as maize, especially in areas where such crops are produced in large quantities.

3.0 Large-scale Agriculture Production and Exports

 3.1 Sugar

A total of 215,533 tonnes of sugar, combining export raw, local raw and refined, were produced at Dwangwa (80,277 tonnes) and Nchalo (135,256 tonnes) from January 2001 to end-February 2002. Out of this, a cumulative figure of 57,438 tonnes were sold domestically with 3,760 tonnes sold in January 2002 and 5,969 tonnes in February 2002 (see Table 1). Export movement of raw sugar registered actual shipment of 22,457 tonnes in January 2002 and 1,447 tonnes in February 2002. As revealed in Table 3, regional exports of raw and refined sugar amounted to 4,316 tonnes in January and 2,000 in February 2002.

Table 1: Domestic Sales (tonnes)

Table 2: Export Movement (in tonnes) in January and February 2002

Table 3: Regional Exports (in tonnes) for January 2002

Source: Sugar Corporation of Malawi

Note: 2,000 tonnes of raw sugar were exported to Tanzania in February 2002 at f.o.b. value of US$320.00 per metric tonne.

 3.2 Tea

The sales of tea at the Limbe Market as at the close of February 2002 registered 4,210,905 kilogrammes from 1^st January 2002 sold at an average price of 85.01 US cents per kilogramme compared to 4,784,469 kilogrammes at an average price of 92.49 US cents during the same period last year. February alone registered 3,743,905 tonnes at an average price of 85.01 US cents. From 1^st January 2002 to end February, a total of 937,534 kilogrammes of M/Grades CL were sold at an average price of 112.61US cents per kilogramme, 2,069,176 kilogrammes of other M/Grades at 88.70 US cents per kilogramme and 1,204,195 kilogrammes of S/Grades at 57.20 US cents per kilogramme

 4.0 Monetary Developments

Developments in the monetary authorities accounts at the end of February 2002 were characterised by an increase in the reserve money by K221.7 million from the January level of K6,754.0 million to K6,975.7 million in February, representing a 3.3 percent increase. Of this, K3,591.5 million consisted of currency outside banks and the remainder, demand deposits of the banking system. This figure is below the IMF[1] March 2002 target of K7,221.0 million. Gross official reserves declined to 2.9 months of import cover as compared to 3.4 months in December and 3.2 months in January. In the absence of major inflows, reserves continued to be dictated by RBM sales to the commercial banks. The continued delays in disbursement of pledged donor inflows put considerable pressure on gross official reserves and liquidity management. With this level of import cover, the liquidity situation need to be contained mainly through restoring fiscal prudence, to reduced Government borrowing.

For example, net foreign assets during the month fell by K1,455.0 million (representing about 19 percent) to K6,243.6 million from the K7,698.6 million recorded in January 2002 due to rising sales of foreign exchange by the Reserve Bank of Malawi to authorised dealer banks (ADBs).

However, net domestic credit to Government increased by K1,258.4 million (representing 35.4 percent) to K4,814.5 million as compared to K3,981.5 million recorded in the previous month while net credit to statutory corporations increased by 6.6 percent from K166.4 million in December 2001 to K177.3 million in February 2002. Reduced Government borrowing will release resources for private sector investment.

5.0 Exchange Rate Developments

The exchange rate, which stabilised between December 2001 and January 2002, closed the month of February at K72.7118 against the US dollar, representing a 7 percent depreciation rate from the January figure. This downward trend is a result of the lean period in terms of foreign exchange earnings arising from the delays in receipt of projected donor inflows which amplified the situation. The trend is expected to continue until the opening of the auction floors in April. However, the situation is might pick up as there is hope for aid inflows for pro-poor expenditures (PPEs).  

6.0 Inflation

The national rate of inflation in February as measured by year-on-year percentage went down by 1.3 percentage points to 18.9 percent when compared to the rate for January. Urban inflation declined from 24.8 percent to 21.7 percent while rural inflation dropped by 0.5 percent to 17.5 percent when compared to figures recorded last month.

Food prices have started to show a downward trend, reversing the trend over the past few months. This trend is more apparent in the urban areas where the decrease between January and February stood at 2.8 percent when compared to an increase of 2.1 percent over the same period last year. For the rural areas there has been a marginal decrease of only 0.2 percent over the same period compared to an increase of 0.5 percent a year ago.

7.0 Government Budget

Government operations for February 2002 were not in line with the resources raised during the month. This resulted in Government recording a budgetary deficit of K1,336.867 million which prompted Government continue borrowing from RBM through Ways and Means Advances to finance the deficit.

Total revenue for February amounted to K2,434.563 million which was K822.287 million less than the figure recorded in January. Malawi Revenue Authority was the main source depositing K1,260.123 million, representing about 52 percent of total revenue. Proceeds from Treasury Bills and Departmental receipts amounted to K774.497 million and K184.106 million, respectively.

Total expenditure for February amounted to K3,771.430 million, slightly lower compared to K3,857.477 million registered in January 2002. This expenditure comprised reimbursements to commercial banks amounting to K2,588.278 million, ORT and salaries for foreign missions of K127.729 million, redemption of treasury bills of K511.743 million, foreign debt and interest payments of K183.268 million and domestic debt and interest payment of K343.981 million as well as other foreign payments of K16.431 million.

The current fiscal funding problems, especially the high inflationary borrowing from the Reserve Bank of Malawi through Ways and Means advances which stood at K4,322.8 million as at 26th February 2002, still pose an enormous challenge in the attainment of the program’s reserve money targets. Further aggravating the fiscal problem will be donor inflows. The worsening of the fiscal performance indicates an urgent need for Government to restore financial prudence. A tight monetary policy needs to be maintained in the short- to medium-term. However, the long-term solution ought to include the implementation of expenditure control and revenue enhancement measures by the Government.