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March 10, 2009

Malawi lifts 2009 growth forecast to 8.7% based on crops

By Sarah McGregor and Nasreen Seria

Malawi raised its 2009 economic growth forecast to 8.7 percent on expectations of a bumper corn harvest and on plans to increase investment in roads, schools and hospitals, central bank Governor Victor Mbewe said.

The estimate compared with the 8.4 percent forecast late last year, Mbewe said in an interview in Dar es Salaam, Tanzania, where he was attending an International Monetary Fund conference. The economy probably expanded 7.9 percent last year, he added.

Malawi, a southern African country that earns more than half its income from agriculture, went from famine in 2005 to becoming a food exporter after it increased fertilizer subsidies to farmers. The country will produce more than 3 million metric tons of corn in 2008/09, compared with local consumption needs of 2.2 million tons, Mbewe said.

Lower tobacco prices may weaken economic growth this year, the governor added. The country of about 12 million people is the world’s second-biggest producer of Burley tobacco, which accounts for about 60 percent of the country’s foreign-exchange earnings. This season’s tobacco auctions begin this week.

Malawi is facing a “balance of payments problem” because of a drop in foreign currency earnings as commodity prices declined and investment from abroad fell, Mbewe said. Foreign currency reserves stand at about $130 million currently and covers only one month of import requirements, he added.

“With tobacco proceeds coming in, and donor funds expected in our budget from June 1, that will help to enhance our position,” Mbewe said.

The central bank will probably keep its benchmark interest rate at 15 percent “for some time” to keep inflation in check, Mbewe said. The inflation rate rose to 10.1 percent in January from 9.9 percent in the previous month, the statistics office said on Feb. 17.

Malawi became the first country to draw funds from the IMF’s revised Exogenous Shocks Facility in December, receiving $77.1 million in loans to help offset the impact of rising fuel and fertilizer costs.

Bloomberg

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