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The Much Touted Malawi Economic Recovery Plan by Joyce Banda Administration. Literally 14 Pages that Include, Presidential Statement, Accronyms, Its more of Bachelors Degree Class Assignment...

The Much Touted Malawi Economic Recovery Plan by Joyce Banda Administration. Literally 14 Pages that Include, Presidential Statement, Accronyms, Its more of Bachelors Degree Class Assignment...


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  • 1. Presidential StatementWhen I took over the office of the President of the Republic of Malawi, on April 7th,2012, the country was facing serious challenges such as shortage of foreignreserves, scarcity of fuel and essential drugs in hospitals. Some industries wereoperating below capacity due to inadequate imported raw materials and othersliterally closed down. In my state of the Nation Address delivered during the stateopening of the 2012/13 National Budget, I highlighted these challenges.To forestall these problems, my Government formulated and is implementing anEconomic Recovery Plan to ensure that our country returns on track to prosperity.The recovery plan identifies areas of intervention in the immediate, short andmedium term. Some of the measures including the devaluation of the MalawiKwacha, setting a market determined exchange rate, restoration of bilateral andmultilateral relations and the repelling of punitive laws in our country have alreadybeen implemented.The conference on the National Dialogue on the Economy which took place atSunbird Nkopola Lodge, Mangochi, solicited views from a wide range of experts onrestoring the country’s economy in order to strengthen the road map for economicrecovery.The conference acknowledged that the MGDS II remains the overarching singlereference document for the country’s development agenda. However, it observedthat MGDS II, which was formulated prior to the coming in of my Government, hadtoo many priorities, and, that there was a need to focus on a few priorities that arepro-growth, represent quick wins, and are highly effective. The conference identifieddiversified commercial agriculture, tourism, energy, mining and infrastructuredevelopment as sectors that can achieve this goal. The other reason is that theMGDS II does not take care of strategies that can be implemented to take thecountry out of the economic crisis that was experienced.The Recovery Plan in its original format for Malawi has been reviewed and it nowoutlines the way forward for the country in the short and medium term to achievequick development results.I therefore, urge all stakeholders to support the recovery plan to ensure that thegoals and targets that have been set are achieved within the time period of itsimplementation.May God bless our country. Mrs Joyce Banda PRESIDENT OF THE REPUBLIC OF MALAWI
  • 2. ACRONYMSAPM Automatic Pricing MechanismCPI Consumer Price IndexECF Extended Credit FacilityESCOM Electricity Supply Commission of MalawiFISP Farm Input Subsidy ProgramGDP Gross Domestic ProductICT Information Communication TechnologyIMF International Monetary FundIPS Integrated Production SystemLIPWP Labour Intensive Public Works ProgramM&E Monitoring and EvaluationMACRA Malawi Communications Regulatory AuthorityMGDS Malawi Growth and Development StrategyMGDS II Malawi Growth and Development Strategy IIMoAFS Ministry of Agriculture and Food SecurityMoEM Ministry of Energy and MiningMoEPD Ministry of Economic Planning and DevelopmentMoEST Ministry of Education, Science and TechnologyMoF Ministry of FinanceMoGCSW Ministry of Gender, Children and Social WelfareMoICE Ministry of Information and Civic EducationMoIT Ministry of Industry and TradeMoTPW Ministry of Transport and Public WorksMoTWC Ministry of Tourism, Wildlife and CultureMSMEs Micro Small and Medium EnterprisesMVAC Malawi Vulnerability Assessment CommitteeNSO National Statistical OfficeOPC office of the President and CabinetPPP Public Private PartnershipsPSF Price Stabilisation FundRBM Reserve Bank of Malawi
  • 3. IntroductionThe Government of Malawi implemented the first Malawi growth and DevelopmentStrategy (MGDS) from 2006 to 2011, as its overarching medium term developmentframework aimed at reducing poverty through economic growth and infrastructuredevelopment. During that period, the economy registered an average growth of 7 percent. It is now the second year of implementation of MGDS II, covering the period2011 to 2016During the first year of the MGDS II implementation, Malawi faced a number ofmacroeconomic challenges. These challenges included reduced disposable incomesdue to poor tobacco revenues, scarcity of foreign exchange and power disruptions.Consequently, economic performance slowed down and Growth Domestic Product(GDP) grew by only 4.3 per cent compared to 6.9 per cent projected in the MGDS II.The severe shortage of foreign exchange had negative impact on imports of strategiccommodities including fuel and industrial raw materials. This situation wasexacerbated by an overvalued official exchange rate and tight administrativeregulations.Although average inflation rate in 2011 remained at a single digit (7.6) the countrystarted experiencing a steady rise in general price levels from early 2011, reflecting apass through effect from increased petroleum pump prices and continued fuel supplydisruptions. Consequently, the average annual inflation rate for 2012 has beenprojected to accelerate to 18.4 per cent.It is with the above background that Cabinet directed that an Economic RecoveryPlan should be developed. The Recovery Plan outlined reforms that were to beundertaken to improve the country’s prospects for socio-economic growth. It alsooutlined the areas that the country would focus on for quick economic gains. Therecovery plan has been enriched by Cabinet discussions and the National Dialogueon the Economy that took place in Mangochi from 29th June, 2012 to 1st July, 2012.The Recovery PlanGiven the economic challenges outlined earlier, implementation of the EconomicRecovery Plan was urgent. Thus the recovery plan embraced a set of immediate(within 3 months), short term (1 year) and medium term (2-5 years) policy reformsaimed at restoring external internal economic stability. It further proposed measuresto cushion the vulnerable from the impact of any reforms particularly the exchangerate policy. In addition the plan proposed increasing resource allocation to areas thatwould address constraints to economic growth such as energy and to those aimed atboosting production for the export market.Immediate Policy Reforms A. Exchange Rate Adjustment: The axle for Malawi regaining macroeconomics balance is a realignment of the exchange rate regime to one that is credible to all market players and allows business to return to normal. To this end, the following reforms were implemented:  Immediate removal of restriction on the foreign exchange bureau market as was the case before the devaluation, in August 2011, to allow them determine their own mid-rate;
  • 4.  The devaluation of the Malawi Kwacha to the country’s major trading currencies was effected in May, 2012;  A flexible exchange rate regime was adopted;  Discontinuation of the pre-screening requirement of imports in excess of USD50, 000 allowing importers to freely import their requirements; and  Reversal of surrender requirements for tobacco dollars and allow tobacco proceeds to go to commercial banks B. Foreign Exchange Reserve Cushion: In order for the exchange rate reforms not to be economically and socially disruptive, there was need for some foreign exchange reserves. The foreign exchange reserves would be essential to meet the need for strategic fuel supplies, social support package and outstanding arrears on foreign bills. To this end, the following measures were undertaken:  Conclusion of negotiations on the resumption of support from United Kingdom and other development partners;  Resolution of misunderstanding with some development partners on governance concerns, including those raised by the Millennium Challenge Corporation;  Conclusion of the new extended credit facility (ECF) with the International Monetary Fund (IMF) which will trigger Balance of Payments and budget support from bilateral and multilateral partners. It is expected that the above measures would complement the inflow of foreign exchange from exports of agriculture products such as tobacco, sugar, tea and cotton C. Fuel Pricing: Over the past years the Government has been controlling fuel pump prices. This meant subsidising fuel when international prices rise and thus accumulating deficits in the Price Stabilisation Fund (PSF) hence posing a risk to the budget. To eliminate this risk, the country returned to the Automatic Pricing Mechanism (APM) D. Monetary Policy: The success of the proposed macroeconomic reforms hinges on implementation of monetary policy that is less expansionary and accommodating. It was imperative to tighten monetary policy by increasing the cost of credit and mopping up excess liquidity. Going forward, periodic use of interest rates, as and when market conditions dictate will be instrumental to the smooth conduct of monetary policyShort Term Reforms (1 year) A. Social Support Package: Economic reforms normally bring unintended negative socio-economic impacts on the general population which need to be mitigated. This is particularly so for the poor and vulnerable households in both rural and urban areas. Therefore as the country is implementing the reforms, it is imperative that interventions to protect the most vulnerable communities be scaled up. To this effect, Government will undertake the following programmes:  Scaling up Labour Intensive Public Works Programmes (LIPWP)
  • 5.  Scaling up the Farm Input Subsidy Programme (FISP)  Scaling up legume seed multiplication, agro-forestry and soil conservation, multiplication of cassava cuttings and sweet potato vines and extending village savings clubs  Scaling up School Meals Programme and Vitamin A Supplementation; and  Continuing the Social Cash Transfer Programme B. Fiscal Policy: The conduct of fiscal policy in the Financial Year (FY) 2012/13 is critical to the success of the recovery plan. The impact of some of the activities implemented within the 3months with flow through the financial year. To this effect, the recovery plan was crafted taking into consideration the capacity to generate domestic revenue and inflow of donor funds against expenditure pressures such as growing wage bill, the social support interventions, as well as the need to support sectors that stimulate economic growth. Accordingly for FY 2012/13 a decision was made to prioritize expenditures to sectors that would enhance economic growth, create employment, and boost production and diversification for the export market for quick foreign exchange generation. The prioritized sectors for rapid foreign exchange generation include agriculture, fisheries and tourism. To this end, efficient and reliable energy will be required to promote value addition, export diversification and boost growth in these sectors and other potential sectors such as miningMedium Term Reforms (2 – 5 years)Benefits of implementing the short-term activities outlined above would flow into themedium term. It is expected that the economic challenges the country isexperiencing would stabilize in the medium term. The medium term agenda for thecountry is outlined in the MGDS II. However, considering the constraints andchallenges the country is experiencing, the National Dialogue of the Economyproposed that priorities in the MGDS II should be reviewed and refocused for rapidgains.Medium term Focus AreasEconomic growth in Malawi is constrained by a number of factors including energy,transport and limited exports. To contain the situation the country will ensure thatenergy generation and supply, transport infrastructure and exports diversification areaddressed quickly. Tourism, mining, manufacturing, commercial farming and agro-processing will assist in generating the desired foreign exchange earnings. Goingforwards, focus will therefore be placed on the following sectors:  Energy;  Tourism;  Mining;  Agriculture; and  Transport infrastructure and ICTEnergy
  • 6. The country continues to face a number of challenges in the energy sector. Theseinclude inadequate capacity to generate electricity and intermittent supply.Consequently, economic activity in areas such as mining and manufacturing areaffected.Government will therefore support investments in energy generation and supply inorder to generate and distribute sufficient amount of energy to meet national socio-economic demands. It will endeavour to, among other activities to do the following:  Continue financing works at Kapichira II Rehabilitation Project;  Establish new hydro stations;  Continue pursuing the Millennium Challenge Compact with a view to widen its scope;  Manage the demand in the industry by encouraging economic usage of electricity, including use of energy of saver bulbs;  Encourage regional interconnectivity;  Explore establishment of coal generated electricity;  Enhance research in other sources of energy including wind and solar; and  Promote Public and Private Partnership (PPP) in energy generation and distributionTourismTourism has the potential to generate revenue, employment, improve infrastructureand promote Micro Small and Medium Enterprises as well as conserve wildlife andculture. The sector has direct linkages with other sectors of the economy. However,the industry faces a number of challenges which include poor supportinginfrastructure, poor service delivery, uncoordinated and insufficient marketing oftourism products and inadequate purpose built infrastructure.To promote the industry, Government will undertake the following:  Develop support infrastructure (electricity, water and transport);  Restock game reserves and national parks and protecting animals  Intensify marketing of the country as a preferred tourist destination and aggressively put measures to increase flights to Malawi, including direct flights from Europe;  Undertake a program to educate more trained staff, supervisors, and managers in the tourism sector;  Enhance marketing of Malawi’s tourism products;  Restore and improve tourism assets, including supporting the restocking of game and parks;  Simplify the system of Visa Issuance for tourists; and  Improve tourism investment climateMiningMalawi has abundant mineral resources that can be exploited. These resourcesinclude bauxite, heavy mineral sands, monazite, coal, uranium, precious and semi-precious stones, limestone, niobium, dimension stones and rock aggregates. Growthin this sector has slowed due to inadequate availability of energy. It is, therefore,expected that with improvement in the energy sector, there will be availability of
  • 7. electricity, which will in turn help to develop the mining sector and hence improve thecountry’s foreign exchange earnings.To derive maximum potential of the mining industry, Government will aim atincreasing production and value addition of mineral resources. To achieve this, thefollowing will be undertaken:  Establishment of legal and institutional framework;  Updating the geological information system;  Undertake a crash program to train mining engineers, legal experts in mining and other related fields in the sector;  Enhance oil exploration and capacity building initiatives in the sub-sector;  Enhance oil exploration and capacity building initiatives in the sub-sector;  Ensure transparency in all mining contracts and close monitoring; and  Promoting participation of local and foreign investors in the mining industryAgricultureAgriculture remains key to the country’s economic growth, wealth creation and foodsecurity. However, the sector is still dependent on rain-fed and subsistence farming.It is characterised by low absorption of improved technologies, poor infrastructure,inadequate markets and inadequate investment in mechanisation.The sector is dominated by tobacco and subsistence maize production hence theneed for diversification and a focus on commercialisation for export markets. Besidesdiversification of crops, the sector will also focus on animal farming and fisheries.The following actions will be undertaken:  Diversify and upscale production of key crops that have potential for export market-including groundnuts, rice, coffee, sunflower, soya, pigeon peas, cotton and sugar;  Continue the Greenbelt Initiative with focus on irrigation farming of high value crops, aquaculture and animal farming;  Enact and implement amendments to the land legislation, including the enactment of the Land Bill;  Review the strategic Crops Act as it disadvantages some crops and brings distortions in the industry;  Encourage large-scale commercial farming;  Adopt Integrated Production System (IPS) which will promote contract farming;  Support agro-processing;  Increase cage farming in fisheries to meet local demand for export market;  Improved animal farming; and  Increase and improve agricultural extension servicesTransport Infrastructure Development and ICTPoor transport infrastructure continues to impinge on domestic and internationaltrade and therefore posing major challenge to economic growth and development.Similarly, poor ICT discourages movement of vital information that is necessary for
  • 8. improvement of trade. Government will therefore aim at improving infrastructuredevelopment programmes focusing on road, rail, air transportation and ICTRail TransportGovernment will aim at reducing transport cost by making rail transport safe, efficientand competitive by undertaking the following:  Rehabilitate and expand the railway line and related infrastructure; and  Create linkages to ports, industrial sites and regional and international markets focusing on those that are linked to the priority crops and clustersRoad TransportConsidering that road transport is the dominant mode of transport in Malawi,Government will target reducing cost of high transportation in the country by:  Continuing to construct, rehabilitate and upgrade road infrastructure;  Improving network of feeder roads, focussing particularly on roads that support growth of selected crops such as sugarcane, groundnuts, soya and sunflower for production, processing and export; and  Developing strategic corridors that are cost effective for international trade.Air TransportGovernment will continue to aim at improving air transport efficiency to encouragetrade, tourism and investment by:  Improving, promoting and providing safe, efficient, reliable aviation infrastructure and services;  Promoting a competitive and efficient air transport industry including by decisively solving the problems of Air Malawi; and  Promoting PPPs to facilitate private investmentICTGovernment will aim at improving usage and adoption of electronic and onlineservices; availability of service; geographical coverage; and usage of modernbroadcasting technology and reducing communication costs by:  Improving the regulatory framework for the sector;  Liberalising the mobile telecommunications sector to encourage new international entrants; and  Ensuring liberal regulatory environment regarding international ICT gateway licences.Annex III shows a list of prioritized projects to be implemented by these sectors.GOVERNANCEGood governance in the implementation of this plan will play a critical role inachieving social and economic development of the country. It will enhance efficiencyin institutions and sustain a stable economic and political environment necessary foreconomic growth and effective functioning of public services. It will also promote ruleof law, human rights, and guarantee property and personal rights which attractprivate sector investment
  • 9. Implementation FrameworkEvidence shows that programme implementation in Malawi has to some extent notbeen successful due to a number of factors ranging from lack institutional capacity todeliver and coordination of challenges. The success of the recovery plan willtherefore, hinge on the strong institutional arrangements and coordination of variousactivities in the Plan.In this regard, the Ministry of Economic Planning and Development (MoEPD) in itsmandate to provide strategic direction for the economy through designing andformulating long and medium term national development strategies will coordinatethe implementation of this recovery plan. This coordination role will be strengthenedand supported by the Office of the President and Cabinet (OPC). OPC will provideoverall oversight and supervisory function to ensure that the Recovery Plan isimplemented. The Ministry of Finance (MoF) will provide resources to the sectorsthat will be implementing the plan. Furthermore, it will prioritise expenditures to thesegrowth enhancing sectors. To this end, Fiscal Policy will therefore aim at spurringfiscal consolidation, reinforcing resilience to shocks and supporting private sector ledgrowth. The Reserve Bank of Malawi (RBM) is expected to pursue prudent monetarypolicy, through restrained monetary aggregate growth, to contain aggregate demandand inflation pressures and shift demand toward domestic output.Lead ministries in the various sectors mentioned herein will spearhead theimplementation. They will provide coordination roles and functions at sector level.The Civil Society and private sector are expected to implement specific activities andprovide oversight and accountability functions. Donors and cooperating partners areexpected to provide technical and financial support for the implementation of therecovery plan. Donors and cooperating partners are expected to provide technicaland financial support for the implementation of the recovery plan to ensure thecountry moves on to prosperity.Monitoring and Evaluation (M&E)All development endeavours will run well if they are cited on a good M&E framework.Supervision of the process and monitoring of results is thus critical for achieving theset objectives and outcomes. In this regard, the recovery plan will be subjected to aquarterly review by the Cabinet or the Cabinet Committee on the Economy andPublic Sector Reforms to assess progress made towards the implementation of thePlan. MoEPD and OPC as the coordinating and overseeing institutions for therecovery plan will serve as the Secretariat in the implementation of the Plan byensuring that information is available for decision making. The Plan has alsoassigned responsibilities and timeframes for implementation. The success andeffective implementation will hence not only depend on MoEPD and OPC at theCentral Level but also lead Ministries at sectoral levels. It is imperative, therefore,that all institutions actively and effectively execute their roles and responsibilities. Tothis end, the M&E Matrix is presented in Annex 2
  • 10. 1 INSTITUTIONAL ARRANGEMENT FOR IMPLEMENTATION OFFICE OF THE PRESIDENT AND CABINET COMMITTEE ON THE CABINET ECONONOMY AND PUBLIC SECTOR REFORMS (OVERSEER) MINISTRY OF ECONOMIC PLANNING AND DEVELOPMENT (COORDINATOR) MINISTRY OF FINANCE RESERVE BANK OF MALAWI (FISCAL POLICY) (MONETARY POLICY) MOAFS MOTPW MOEM MOTWC MOICE MOGCSW MOEST MOTWC1 MOAFS (Ministry of Agriculture and Food Security); MOTPW (Ministry of Transport and Public Works), MOEM (Ministry of Energy and Mining); MOTWC (Ministry ofTourism, Wildlife and Culture), MOICE (Ministry of Information and Civic Education); MOGCSW (Ministry of Gender, Children and Social Welfare); MOEST (Ministry ofEducation, Science and Technology)
  • 11. Annex I: Matrix of Recovery Plan PoliciesFocus Areas Objective Time Frame Responsibility for Status ImplementationExchange rate immediate Reserve Bank of Malawi DoneadjustmentForex Exchange Cushion Forex availability Immediate Development Partners PartiallyReserve Cushion doneFuel Pricing Reduce Pressure on the budget Immediate Fuel Pricing Committee DoneFiscal Policy To improve mobilisation of and efficient Immediate to Ministry of Finance Partially utilisation of resources short term doneMonetary Police To anchor price dynamics in order to maintain Short-term Reserve Bank of Malawi On going low and stable inflationSectoral Resource To prioritise expenditure to sectors that would Short term Ministry of Finance PartiallyAllocation enhance economic growth doneMining To improve foreign exchange earnings Short term Ministry of Energy and On going MiningEnergy To generate and distribute sufficient amount of Short to Ministry of Energy and On-going energy to meet national demand medium term MiningTourism To improve forex earnings Short to Ministry of Tourism, On-going medium term Wildlife and CultureAgriculture Ti improve forex earnings Short to Min of Agriculture and On-going medium term Food SecuritySocial Support Mitigate unintended socio-economic impacts of Short to MEPD, MOEST, On-going the recovery plan medium term MoGCSWTransport Improving the movement of goods and services Medium term MoTPW, MoICE, OPC (e- On-goingInfrastructure and ICT and the sharing of information to facilitate trade government)
  • 12. Annex II: M&E MatrixKey Indicators (Output/Outcome) Baseline: Target: Responsible Frequency of data april 2012 December 2013 Institution collectionEconomic ReformsImport Cover 1 months 3 months RBM MonthlyInflation (CPI) 12.4 Single digit MoEPD/NSO MonthlyAnnual GDP Growth rate (%) 4.3 5.7 MoEPD AnnualAgriculture and FisheriesPercentage of food secure population 89 100 MoEPD (MVAC) Annual MoAFSNumber of fingerlings produced 700, 000 1, 050, 000 MoAFS AnnualQuantity of Fish landed/Captured from lakes and 72, 000 81, 000 MoAFS AnnualRivers (MT)Percentage of Farmers accessing Agricultural 40 50 MoAFS AnnualMarketsIncreased export earnings from agricultural MIT Annualcommodity cropsEnergyRate of power outages (Hrs/day) 2 1 MoEM AnnualNumber of new power stations constructed 0 1 MOEM AnnualPercentage of households with access to 10 12 MOEM AnnualelectricityMiningPercentage Contribution of Mining to GDP 10 14 MoEM/MoEPD AnnualA detailed geological map of Malawi produced 0 1 MoEM End of PeriodSkills of artisanal and small scale miners (ASM) 560 1, 500 MoEM Annualincreased (number of ASM trained)Investment in the mineral sector increased 2 3 MoEM Annual(number of newly opened mines)Tourism
  • 13. Distance of protected area access roads 300 500 MoTWC/MoTPW Annualconstructed and rehabilitatedNumber of marketing and awareness campaigns 250 500 MoTWC AnnualPercentage Contribution of Tourism to GDP 2 MoTWC/MoEPD AnnualTransport InfrastructurePercentage of Road and Rail network in good MoTPW Annualcondition i. Road 55 56 ii. Rail 33 41.7Number of Passengers by air 371, 371 408, 404 MoTPW AnnualTonnage moved by air 4, 123 7, 900 MoTPW AnnualICTProportion of the Population using ICT Services 36.3 41.23 MoICE/MACRA Annual i. Telephone lines per 100 population ii. Cellular line subscribers per 100 0.80 0.83 population iii. Internet Users per woo population 20 23.49
  • 14. Annex III: List of Projects by SectorSECTOR PROJECTEnergy I. Kholombidzo Hydro-Electric Project II. Thermal Power (Coal Generation Project) III. Regional Power Interconnection ProjectMining i. Aerial Mapping ii. Updating of geological mapping iii. Mining projects with confirmed mineralsTourism i. Tourism Marketing Promotion and Publicity Project ii. Institutional Reform and Capacity Development Project iii. Development of Tourism ProductsICT i. National ICT Development Programme (has three components including e-government)Transport Sector i. Rehabilitation of Beira/Sena and Nacala Railway Lines ii. Construction of Biriwiri-Tsangano-Neno-Mwanza, Rumphi-Nyika-Chitipa, Lilongwe-Old Airport-Kasiya- Santhe and Lirangwe-Changalume-Machinga roadsAgriculture i. Production of legumes and pulses, rice, coffee, sunflower, cotton, sugar, paprika and spice in Malawi ii. Livestock production (sheep, goats, cattle)Note: The list of Projects is not exhaustive