Escaping economic malaise

“Change or perish,” was what donors told Malawi under the former president, Bingu wa Mutharika, who died in April. During his term, he was dictating the pace of events. Mutharika complained about “stupid donor policies” which, according to him, were undermining his authority.

Donors wanted him to
– devalue the national currency, the kwacha,
– enforce the rule of law and
– respect the freedom of expression and other democratic principles.
Since he did not comply, they began to discontinue aid disbursements. The death of the president has ignited a new debate about the role of donors in Malawi. The country depends on foreign aid. Indeed, the new president took some tough decisions. Under Mutharika, misery had been worsening. Fuel became so scarce that vehicle owners spent nights sleeping in their cars at petrol stations. Foreign exchange was no longer available to businesspeople. The economy was close to collapse.

After his death, things changed fast. Today, donors praise Joyce Banda, the new president, for reversing almost everything Mutharika believed in. “My immediate task is to restore donor confidence,” she said soon after taking office on 7 April. “Malawians have suffered because donors were not supporting us because of our failure to respect the rule of law and poor governance.”

Banda was Mutharika’s vice president. She had fallen out with him, but according to the constitution, she became his successor. Her appointment was controversial as some of Mutharika’s cabinet members would have preferred Mutharika’s brother Peter. The constitutional order prevailed nonetheless, as civil society ac­tivists threatened to sue dissenting ministers.

Banda’s reversal of her predecessor’s economic policies and the passing of the 2012/2013 budget in June heralded a new chapter for Malawi. Even before Parliament discussed the budget of about 400 billion kwacha ($ 1,5 billion), donors pledged new support. The EU, the World Bank, Britain and others are organised in the Common Approach to Budget Support (CABS). Together, they promised to make $ 496 million available. According to the finance ministry, this represents an increase of 140 %. Malawi government has also signed a three-year $ 157 million relief package to support the country’s economic recovery. “The new government has moved swiftly and boldly to change the policy environment and begin to address the Malawi’s chronic imbalance between foreign exchange earnings on the one hand and the demand for foreign exchange on the other,” says Tsidi Tsikata of the International Monetary Fund (IMF).

Fuel and for-ex have become available again – but at a high cost. The kwacha has devalued by 49 %. Accordingly, the prices for imported goods have risen dramati­cally. Fuel prices have soared by more than 50 %. Mutharika’s former Finance Minister Goodal Godwit says devaluation has sent Malawians into poverty.

He has a point. The steep devaluation came without any mitigating programmes for the poor. According to the IMF the country’s real per capita income was around $ 250, and has shrunk to only $ 150 due to devaluation. More than 60 % of Malawians are now below the poverty line. Some commentators warn that Banda must not do everything donors demand. They fear that Malawi will become donor driven. Banda hits back: “For the past three years we have chased away donors and we have been very militant against them, what have we achieved?” Malawians were tired of Mutharika, but devaluation has hit people hard, and many now think the former head of state had a point in refusing to fulfil IMF demands. Salaries are stagnant, and some are now questioning the government’s motives for devaluing the kwacha.

The truth, however, is that the government had no choice, and that Malawi was certainly not prospering under the old regime. The sudden death of Mutharika has changed the dynamics of policymaking and the outlook for the economy. After the malaise of the past few years, there is finally hope for growth once more.