EU backs Joyce Banda administration on reforms

The European Union (EU) has said Malawi’s economic hardships resulting from donor-driven reforms would continue even if Malawians voted out the current Joyce Banda administration on the basis of high cost of living.

EU Ambassador Alexander Baum and Norwegian Ambassador Asbjørn Eidhammer were reacting to a questionnaire on whether they realised that reforms they passionately advocated for have pitted the JB administration against the very citizens such reforms intended to benefit.

Baum said even in Europe, governments implementing economic reforms have been voted out of power, but their successors have continued with the same “painful reforms”.

He said: “We have our own experiences with overdue economic reforms in Europe. Many governments which are implementing reforms have been voted out, but the new governments have continued the reforms, because there is no choice.”

The JB government faces a tough ride as Malawians pace towards the May 20 2014 general elections amid economic hardships that have eroded the buying power of the majority poor.

Before and after the Bingu wa Mutharika regime, donors pushed for such reforms as devaluation and floatation of the local currency which the late Mutharika vehemently opposed, pitting himself against the development partners.

But his successor, Banda, instantly reclaimed donor confidence when she immediately embraced the donor-driven reforms almost wholesale much to the chagrin of Malawians currently feeling the pinch of rising headline inflation which ushered in unbearable cost of living.

Both Baum and Eidhammer defended the reforms, except blaming the resultant citizen revolt to lack of communication and unshared pain on the part of the Banda ruling elite.

Eidhammer, on the other hand, said: “Personally, at an early stage in an interview with your newspaper, I said there would have to be sacrifices, and that everybody, not least those who could afford it most, must be prepared to take their share.”

However, donors and many people now feel the Executive has not shared the austerity pain, leading to strikes as people worry with the too many presidential travels and huge sums being paid out to a few individuals.

Baum and Eidhammer still heap the heavy blame for the current economic hardships back on the Mutharika government, saying “there is a fundamental lack of analysis around the debate on the economic reforms.”

Said Baum: “The starting point was the state of the economy back in March last year. A grossly overvalued kwacha, black market, no access to forex and only those with connections got the dollars thereby fueling grand corruption.

“The economy was very close to collapse as companies could not import any more. All access to international credit was stopped. Instead, a huge stock of outstanding suppliers credit was built up. The National Budget was increasingly financed from domestic borrowing thereby inflating liquidity in the market that started to drive inflation up.”

Eidhammer echoed these sentiments, saying: “The truth is that the Malawian economy for the last few years developed a serious imbalance. The consumption, particularly of imported goods, was much, much higher than the production, in particular the export.

“Just think of the enormous increase in import of vehicles, which again led to the need for import of fuel. This situation was untenable, and there is no other way out of it than tightening of belts. It is this past policy the Malawians are paying for today.”

Currently, there has been a steady supply of fuel at the pump but prices keep rising monthly as the kwacha races against the US dollar.

Late last year, Reserve Bank of Malawi (RBM) Governor Charles Chuka strongly opposed stakeholder views that the kwacha would reach K400 to a dollar before the next fiscal year, but at close of business on March 1, the local currency traded at a minimum of K395 to the dollar.

Currently, petrol has gone up to K704.30 per litre and is poised to rise again with the dollar flying that high.

Since Banda took over, donors have pumped in about $600 million by the end of 2012.

Said Baum: “If there had been no fundamental turn around, we would not have been able to do so. For example, DfID [Department for International Development] and EU disbursed about 85 million dollars in December 2011 in budget/balance of payment support. Three months later, the reserves were $40 million. We supported an inefficient system, this was unsustainable.”