Malawi Economy to Grow 5.4% After Floods, Mutharika Says

Malawi expects its economy to grow by 5.4 percent this year, even after the southern African country was hit by devastating floods and dry spells that damaged tobacco and corn crops, President Peter Mutharika said.

Growth would rebound in 2016, reaching 6.5 percent, Mutharika said Tuesday during a state of the nation address to lawmakers in the capital, Lilongwe.

Floods in January displaced more than 200,000 Malawians and killed at least 176. Tobacco is Malawi’s largest export earner and the country is Africa’s largest supplier of the burley, or air-cured, variety of the crop.

Malawi’s government would pursue policies that seek to curb inflation and reduce the balance of payment deficit, Mutharika said. Annual average inflation is expected to drop to 16.4 percent in 2015 from 23.8 percent last year, helped by a more stable exchange rate and lower oil prices, he said.

“It is projected that inflation will continue to be on a downward trend and will reach an annual average rate of 12 percent in 2016,” said Mutharika.

Malawi’s traditional donors have withheld as much as $150 million in aid because of a government corruption scandal referred to by local media as “cashgate.” Donors have provided up to 40 percent of the country’s budget in previous years.

“Following the cashgate scandal, the contribution of donor support to the budget substantially declined from about 30 percent of the total resource envelope to less than 20 percent in the 2014/2015 fiscal year,” Mutharika said. “As a result, the 2014/2015 budget has been largely financed by domestic resources.”

To fill the revenue gap caused by reduced donations, the government intensified tax reforms, a process Mutharika said he expected to be completed by the end of the 2015/2016 fiscal year.