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Introduction

The bank rate is one of the main instruments used by the Reserve Bank of Malawi to implement monetary policy. The rate was last reduced in November 2007, from 17.5 percent to 15 percent and it was maintained at that level until 1st August 2010 when it was further reduced to 13%. Similarly, commercial banks’ prime lending rates and average savings rate remained at 19.6 percent and 3.3 percent, respectively. According to the Governor of the Central Bank Dr. Perks Ligoya the decision to reduce the bank rate was made in light of good progress made in reducing inflation. Furthermore, the Central bank spokesman Mr. Samuel Malitoni emphasized that the reduction aims to promote private-sector growth. The purpose of this paper is to analyse the implications of the reduced bank rate to the Malawi’s economy and provide policy guidelines to Government and financial sector on how to address impending challenges.

Introduction

Recently, there has been a budding proposition for the increased involvement of the private sector in water services to facilitate effectiveness and efficiency in the provision of these services. Use of Public Private Partnerships have been the most proposed approach of dealing with inefficiencies in most public owned entities. However, such kind of arrangements have not been ventured in sectors such as the water sector as some people feel that these sectors have a social inclination.

But, will privatization of water utilities deliver as anticipated, and would this be socially just? And secondly, apart from privatisation, are there other water delivery options that may achieve the same anticipated goals? The Public-Private involvement continuum generally includes the following contracts (presented in an increasing order of private participation): service, operation and management, lease-type, build-operate-transfer or concessions, design-build-finance-operate or divestiture. Water services may be contracted at different stages of the life cycle of the water systems i.e. abstraction, distribution, waste collection and disposal.

 Introduction

The private sector has been deemed to be the engine of economic growth and development. Economies must rely upon them to improve the welfare of people through enhancement of employment among others. Governments are now charged with the responsibility of making the playing ground level for all parties and improving all macroeconomic fundamentals in order to facilitate the growth of industry. Without a proper government regulation and financial system, growth of industry should not be even talked about.

It is then imperative to say that the development of the financial sector is important in aiding economic development. The financial sector which is composed of both money and capital markets is important in indirectly linking small savers who have surplus money to big investors who have brilliant ideas but do not have funds to implement their thinking.

An efficient and vibrant financial sector is critical to economic growth because such a system allocates investment resources following good economic principles. There cannot be a private sector if there are no funds. A brilliant idea such as one to add value to ground nuts cannot take-off if the financial market cannot provide the resources at a competitive price.

1. Introduction

Government recently announced plans to broaden the tax base as one of its development policy agenda. As a developing nation, Malawi’s fiscal budget is financed by tax revenue supplemented by, among others, donor funds and domestic and external loans. In the 2010/2011 Budget government scaled down the expected funding from donors and increased funding from the local resource base. This implied more tax revenue needed to finance the deficit previously provided by donor support and this can be achieved by increasing tax rates and enlarging the tax net.

Government faces dilemma on how to deepen the tax base while not over taxing people thereby exacerbating the poverty problem. In addition, higher domestic income and expenditure taxes will eventually deter investment.

In a bid to improve mobile services and to reduce tariff rates, which are among the highest in southern Africa, the Malawi government recently launched an international tender for a fourth mobile phone operator. In fact, they have been trying to increase the number of mobile phone operators to four since May 2008. But is this the best way to improve service and reduce tariff rates?

The view that tariff rates are very high in Malawi was also corroborated by the Information and Communication Technology Association of Malawi (ICTAM) interim President Derek Lakudzala. Mr Lakudzala points out that the high tariffs, among other things, are due to expensive infrastructure such as towers which is not shared among operators and, therefore, a lot of unnecessary cost is passed on to the consumer. A number of people in my network on Facebook have also mentioned this problem. Mr Lakudzala further says purely pushing the blame entirely on the operators is not correct either. He says tax policy regimes and regulatory frameworks also play a role. On his part, ZAIN Malawi Managing Director Fayaz King says reduced taxes and wooing more customers to existing network would enable companies to reduce airtime prices.

Malawi is riding high on the success of its fertiliser subsidy programme and has become a regional exporter hoping to profit from booming food prices, but analysts are a bit more wary.

Globally food prices have shot up by nearly 75 percent within a decade and will continue to do so, according to the World Bank's annual Global Economic Prospects 2008.

"We are looking to expand our exports regionally, at least; the high food prices have come as an added incentive. It is a good opportunity for our farmers - we have to invest in agriculture," said Patrick Kabambe, permanent secretary in the Ministry of Agriculture.

Malawi's National Food Reserve Agency officially exported 286,589 tonnes of maize to Zimbabwe by the end of December 2007, according to the USAID-funded Famine Early Warning System Network (FEWS-NET). The World Food Programme also sent 32,363 tonnes of Malawian maize to Zimbabwe, bringing the total official exports from Malawi to 321,406 tonnes. The country also donated maize to drought-hit Lesotho and Swaziland.

Just like any other individual in the global economy, I crave to understand the meaning of the financial turmoil hitting the developed countries, for the developing world including Malawi. In this post I will say something briefly about it. To do this, I will make some assumptions about the predominantly Western economic downturn in the short, medium and long term.

As a point of departure, let's assume that the downturn will continue to trouble Western countries for sometime considering that part of its life span is hidden in whether consumers will soon regain confidence in the financial markets or not, then one would argue that for countries like Malawi, the short-run is less troubling because Malawi does not have a vibrant financial market and the Malawian economy is only indirectly and perhaps remotely related to it.

The impact of the financial crisis on Malawi has so far been limited. The financial sector is small and less sophisticated, with two (out of nine) commercial banks dominating the banking sector. Foreign direct and portfolio investment levels are very low. However, most commercial banks have reported difficulties accessing foreign credit lines. Furthermore, exchange rate movements in the west are having a negative impact on foreign aid inflows to Malawi. For example, DFID’s inflows (in Malawi Kwacha equivalent) have been reduced by about 25 percent due to a depreciation of the British Pound against the US Dollar.