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Malawi could have become a failed state without devaluation

Historic relations between Great Britain and Malawi hit its lowest ebb when former President Bingu wa Mutharika expelled Her Majesty’s top envoy in Lilongwe after a leaked diplomatic cable to London described him as “increasingly becoming autocratic and intolerance of criticism”.

Following his death in April, his successor Joyce Banda went on a diplomatic charm offensive which saw the restoration of residential diplomatic relations between the two countries. RAPHAEL TENTHANI had a conversation with the new British High Commissioner to Malawi Michael Nevin. Excerpts:

Your Excellency, welcome back to Malawi. I know this is your second tour of duty. How does it feel to be back? Have you found the country the way you left it or it has improved or deteriorated?

It is a great honour for me to be back in Malawi. In our postings system, we bid and compete for jobs, so I obviously wanted to come back and was fortunate to be able to.

I found that there is a growing young, confident, well-educated and talented group of people. There is a greater understanding of and demand for rights. Good progress has been made on infant mortality and raising longevity of life, the latter partly because of access to HIV/AIDS drugs. And there has been some infrastructure development.

But poverty is still far too high; the economic boom and bust, linked to politics, is too frequent; there is talk about large scale irrigation and commercialisation of agriculture but not yet a sustained national drive to achieve it; population growth threatens to undermine the gains made; and democratic institutions could be more robust and effective. However, I do sense the beginnings of a more serious internal discussion about Malawi’s future and the need to reduce donor dependency. The more the country collectively can agree on a vision and focus on getting there, the better.

Your coming signified a thaw in the soured relations between Lilongwe and London that came to a head with the expulsion of your predecessor, His Excellency Fergus Cochrane-Dyet. Recently, Britain announced a £20 million budgetary support to Malawi, the first budgetary support since suspension of aid in July 2011. Does this mean that all concerns that led to the suspension have been addressed?

What happened diplomatically between our two countries was unfortunate and I hope never happens again. However, Malawi and the UK have a long standing, deep and broad relationship that goes way beyond diplomatic relations. That helped during those difficult times.

Central to the UK-Malawi relationship is our shared objective to see Malawi lift itself out of poverty. I want to make clear that despite the difficult diplomatic period, the UK never abandoned Malawi. UKAid, through DFID, continued to help people access health, get education and feed themselves. That support has increased in response to what we judge as good economic and governance policies under the new government.

But the economy remains fragile. The one-off £20 million emergency budget support approved by DFID’s Secretary of State Justine Greening recognised that the country needs an extra boost to ensure macro-economic stability, within the context of progress on economic and budgetary management, governance and human rights. The Secretary of State wants to allow the Government to build a good track record of further progress before making any decisions on regular budget support.

One of the reasons that led to either suspension or delay in disbursing of aid to Malawi by the West was the Mutharika administration’s refusal to devalue the kwacha. Now the government of President Joyce Banda has not only devalued but also floated the kwacha. The results are there for all to see: prices of goods and services have gone through the roof. Do you believe it was right for Malawi to not only devalue but also float the kwacha?

There is no doubt that the Malawian economy was in bad shape as a result of the poor economic policies pursued by the previous administration. Perhaps the pain could have been lessened if there had been a move to devalue much earlier, during the last government. But we are where we are.

Floating the exchange rate is part of an appropriate monetary policy. I commend the Governor of the Reserve Bank of Malawi for conducting a difficult balancing act. If the currency does not float, the country gets a false sense of how much its imports do cost and their exports should cost. We saw the effect during the last administration, with currency black markets, forex flight, pressure on state institutions to cook the books and creditors deciding not to lend to Malawi.

Basically, the country was importing far too much, at an unrealistic price, and its reserves and credit were plummeting. Without devaluation, the country could have become a failed state.

Now, with a free exchange rate, international confidence is coming back, exporters to Malawi believe they are getting a fairer price, as do exporters from Malawi, and macro-economic stability is returning. Inflation is high, but it is not hyper-inflation. Sticking to the current monetary, and most importantly, fiscal policies should help to reduce inflation next year.

Some quarters are urging the Banda administration to halt the floatation of the kwacha. Do you think that that would be a wise thing to do?

It would be a disaster. You would quickly see the impact. Economic policy reversals and uncertainty are what the financial money markets, creditors and investors are most wary of. Credit and forex would soon dry up and the black market for forex would return.

All the economic reforms implemented so far are in line with Malawi’s economic recovery programme as agreed with the IMF. We believe this was necessary to address long standing concerns around economic management. If these measures are abandoned, there is a risk that the economy could get worse.

Critics say the West, including Great Britain, hoodwinked the Banda administration to devalue the kwacha with assurances of injection of aid to cushion its after-effects. But the reality now is that such aid is only coming in trickles. Do you agree that such critics have a point?

First of all, the country made its own decision to devalue because it knew that this was in the country’s interests. Secondly, it is a myth to suggest that donors have not responded. From April 2012 to the end of this year, donors will have injected over $0.8billion into Malawi. UKAid alone accounts for over £88 million of that. This is far higher than initially intended.

So any suggestions that the donors have not fulfilled their side of the bargain are either made through lack of knowledge or mischief.

Malawi is still grappling with the issue of minority rights vis-à-vis whether or not to decriminalise same-sex relationships. Prime Minister David Cameron was quoted as saying its aid to developing world will be tied to how such countries treat rights of minorities such as gays and lesbians. Can you explain this?

Our position that fundamental rights, including those of minorities, should be upheld is well known. We are not promoting or forcing anyone to adopt a particular lifestyle. But we do not agree that someone should be put in prison simply because they are gay. Human rights are universal and should not be determined by sexual orientation or gender identity.

But it is for Malawi to decide how to handle this issue within its human rights responsibilities. We welcome the debate that has been started. We do not tie our assistance or relationship purely to one issue, but instead consider the broader indicators and trends of good governance and human rights.

The debate should be conducted on its own merits, not whether there will be more or less money from donors.

There is an on-going debate on whether or not it was proper for President Banda to put the Malawi Electoral Commission under the office of the Vice-President. What’s your take on this?

The independence of the MEC is vital; as is the perception of a credible election. We understand too that the MEC needs a docking point within the administration to help it achieve its objectives. It is for stakeholders to decide whether current arrangements fulfil those goals.

Lastly, Your Excellency, several European countries – including Great Britain – are fighting recession. Will this have any effect on volumes of aid to developing countries like Malawi? (I am specifically talking about the United Kingdom here.)

Yes, we have an austerity budget in the UK. Times are tough there too. That is why it is important to make every pound count, and for the Malawi Government to ensure it is prioritising the right things.

But, despite our own difficult situation, the British people and Government understand the importance of assistance to other countries, and the positive impact that in turn can have on the UK. The British Government remains committed to achieving its target of 0.7% of its GNP spent on development assistance by 2013. The UK – and DFID in particular – has won great admiration for this and is at the forefront globally in urging other countries to match that commitment.

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