Sources: NSO and RBM Monetary Policy Committee Minutes for March

2.2     Monetary Developments

Developments in the monetary authorities accounts during the month of March were characterized by a month-on-month increase of K269.6 million in reserve money to K7,245.4 million. This was largely attributable to an increase of K100.0 million in net domestic credit to the statutory bodies while that of the central government decreased by K6.7 million. On the external front, net foreign assets recorded a decrease of K674.3 million mainly due to sales of foreign exchange to the market.

The performance of monetary authorities accounts against the March targets was unsatisfactory as reserve money at K7,245.4 million exceeded its March target of K7,221.0 million by K24.4 million. While net foreign assets overshot the target, net domestic credit to government at K4,317.1 million fell within the March target of K7,843.0 million.

2.3     Exchange Rate Movements

Exchange rate movements were affected by the continued depletion of gross international reserves partly attributable to delays in donor inflows and low export earnings arising from the fact that during this period. The delays in donor inflows led to increased RBM sales of foreign exchange to the authorized dealer banks (ADBs). As a result of this, gross official reserves fell from 2.9 months of import cover in February to 2.3 months of import cover in March 2002.

The low gross reserves caused the exchange rate to depreciate against the currencies of Malawi’s trading partners as speculation of the depreciation mounted. The Kwacha depreciated by 2.9 percent from K72.7118 against the US dollar at the end of February to K74.8043, 2002 (Table 1.1). However, the trend may improve following the opening of the tobacco auction floors and if donor inflows improve.

2.4     Inflation

The rate of national inflation for March 2002, as measured by year-on-year percentage changes, declined by 0.9 percentage points to 18.0 as compared to February 2002 figure. Urban inflation also declined from 21.7 percent to 19.8 percent while rural inflation dropped by only 0.3 percent to 17.2 percent compared to February figure. The downward trend in the food index set off last month has been maintained as prices of most of the cereals and cereal products continue to go down in most parts of the country following the yearly seasonal pattern. This trend is more apparent in the urban areas where a decline of 3.5 percent was registered between February and March as compared to a decline of 1.0 percent over the same period last year. The rural areas, however, did not register a significant decrease as they only have a marginal decrease of about 1.5 percent between February and March 2002 compared to a decrease of 1.6 percent a year ago.

3.0     The Food Security Situation

The food security situation, as at the end of March, remained unsatisfactory although food imports had risen and consumption of green maize had continued. Still long queues at ADMARC markets have been the norm although at a reduced rate than the previous months due to the fact that other areas had started to have normal harvest. The ADMARC maize price, however, has remained at K850 per 50-kilogram bag, while that of the alternative local markets has been slightly higher. Local market maize prices have been declining during the month reflecting more maize supply on the market arising from more harvests as the crop is maturing. Incidences of selling household assets like livestock at very low prices, which

characterized the month of February, were minimal during the month of March indicating an improvement in household food security.

As for national maize availability, as at the end of March, a cumulative amount of 89,023.357 metric tonnes of imported maize from South Africa and Tanzania had been delivered in the country through the National Food Reserve Agency (NFRA) while 23873.304 metric tonnes was in transit. Of the maize delivered, 56,581.219 tonnes were sold in the Southern Region, 23,158.378 tonnes in the Central Region and 9,283.760 tonnes in the Northern Region. Some informal maize imports must have occurred during the month but the amounts involved are not yet known.

The outlook for food security situation this year indicates that the food insecurity will continue this year. According to the second crop production estimate figures, Maize production is expected to decline by 14.4 percent from 1.9 million tonnes last year to 1.6 million tonnes this year. The crop is likely to be exhausted much earlier than August because people have started eating the green maize whilst in the field. However, the production estimates for other food crops, such as rice, cassava and sweet potatoes are projected to rise by 1.4 percent, 3.0 percent and 15.6 percent, respectively.

The increased output for other food crops will likely improve the food security situation in the urban areas where people’s consumption patterns are more diversified than in the rural areas. Nevertheless, it is most likely that the country will require substantial maize imports, even from outside the SADC Region, for it to recover from the current food shortage situation. However, in order to minimize the food shortfall later in the year, Government should seriously consider the possibility of implementing a universal starter pack scheme as a temporary measure and contract out to estates to grow irrigated maize now for Government. There is also need for Government to intensify public works programme, and supplementary feeding programs in order to alleviate the food security problem. At the moment, the Malawi Social Action Fund is implementing emergency cash for work programme in all parts of the country. The Government has provided the sum of K113 million of which K21 million was disbursed during the months of February and March. This programme will continue during the year 2002.

4.0     Tea Auction Sales

Table 1.2 shows cumulative tea sales at the Limbe Auction Market for the month of March 2002 compared to the previous months, January and February. From the table, tea sales are not performing well compared to the same period last year.

Table 1.2: Tea Sales at the Limbe Auction Market,

 January –February 2002

Source: Tea Brokers Central Africa Limited

During the month of March, a total of 8,550 metric tonnes of tea was sold at the Limbe Auction Market compared to 4210.9 metric tonnes over the previous months of January and February. The decline in tea prices from 85.01 to 84.82 reflected the drop in tea prices on the world market as a result of the oversupply of tea. However, the total revenue earned from these sales registered an increase due to the volumes sold.

5.0            The Poverty Reduction Strategy Paper (PRSP)

The preparation of the Poverty Reduction Strategy Paper (PRSP) has been completed. The PRSP is expected to be launched during the month of April 2002. The 2002/2003 budget, will be based on the PRSP the implementation of which is expect to cost K41.3 billion. All public expenditures that do not reflect the PRSP will be phased out over time. .

Conclusion

In summary, the economic situation for the month of February 2002 was characterized by a deteriorated fiscal position, a marginal growth in reserve money, depletion of gross official reserves to 2.3 months of import cover. That resulted to depreciation of the Kwacha by 7 percent to K72.7 to the U.S. dollar by the end of February, and the decline in inflation to 18.9 percent in February. In absence of donor inflows, there is need for the Government to monitor and manage the budget prudently and increase its efforts to persuade the donors to disburse the pledged foreign grants.

On the food security situation, food availability was still a problem as indicated by long queues at Admarc markets and a relatively low level of imports. It is expected that the situation will be worse again during the year 2002 given the 5.0 decline in maize production as indicated by the second crop estimates. The food security situation, therefore, needs to be monitored very closely as many people may run out of food much earlier than August because they have started consuming their food crops while fresh in the field. Most significantly, access to food by the poor through the markets will need to be improved significantly through improved safety nets interventions and improved food imports and distribution networks. In addition, Government should seriously consider the possibility of implementing a universal starter pack scheme as a temporary measure and contracting out to estates to grow irrigated maize now for Government in order to minimize the food shortfall later in the year.