SADC/PRP/1/2015/3B
COMMUNIQUĖ
SADC MACROECONOMIC PEER REVIEW MECHANISM PANEL MEETING
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SADC Ministers responsible for Finance and Investment and Central Bank Governors
constituting the Peer Review Panel (PRP), met on 3 August 2015 in Bulawayo,
Zimbabwe, to review Lesotho and Malawi, the first State Parties to be reviewed since
the SADC Macroeconomic Peer Review Mechanism process was launched on 18 May
2013 in Maputo, Mozambique. The Panel Meeting was preceded by a two day
preparatory meeting of Senior Treasury and Committee of Central Bank Officials.
The purpose of the peer review process is to review progress made by individual
Member States towards the achievement of agreed SADC Macroeconomic
Convergence targets as well as to identify risks to economic outlook and policy options
to mitigate them.
This statement summarises the main findings and recommendations of the Panel, as
well as the Authorities’ views. The Panel is highly appreciative of Lesotho and Malawi
Authorities’ demonstrated commitment to the review process, and for giving the
necessary support to the SADC Country Review mission to undertake an independent
assessment of the Country Macroeconomic Convergence (MEC) self-assessment
reports.
Lesotho
Lesotho’s economic performance is to a large extent influenced by developments in the
South African economy, given the high degree of integration and fixed exchange rate
arrangements within the auspices of a customs union (SACU) and a common monetary
area (CMA).The economy has in recent years performed satisfactorily with real GDP
growth averaging 5 per cent, supported by large public investment. In 2014, inflation
rate remained stable below 6 per cent (within the 3 – 7 per cent target range) despite
the volatile Rand exchange rate. As of May 2015, inflation decelerated to 3 per cent.
Although fiscal balance is considerably affected by the volatility and dependence on the
SACU receipts, the fiscal deficit to GDP ratio recorded 1.6 per cent, within the set target
of less than 5 per cent of GDP. Public debt has been on the rise mirroring changes in
the exchange rate of the local currency vis-a-vis the US dollar in which most of the
country’s debt is denominated .The public debt to GDP ratio was 48.5 per cent in 2014
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compared to 45.4 per cent in 2013, which is still within the set target of 60 per cent
GDP.
Notwithstanding the satisfactory macroeconomic performance in recent years, the need
to diversify the Lesotho economy and minimize its vulnerability to SACU receipts cannot
be over-emphasised.
The Panel therefore advises as follows:
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Emphasise and support Lesotho Authorities’ effort to intensify the implementation
of the National Strategic Development Plan (NSDP) and improve the low
execution rate of the development/capital budget in order to address the
structural inadequacies of the economy and bring about macroeconomic and
fiscal stability that would spur sustainable growth and development.
The Authorities should implement the remedial policy intervention strategy,
namely the National Action Plan for MEC to ensure continuous compliance with
the SADC MEC benchmarks.
Malawi
The Malawi macroeconomic situation remained mixed during 2013/2014. GDP growth
continues to portray some resilience while inflation and exchange rate volatility
remained a challenge. Real GDP growth recorded 6.2 % in 2013 and is estimated to
have slightly receded to 6.0 per cent in 2014.Looking ahead, growth is projected to
remain solid at 5.8 per cent in 2015 and will continue to be led by the agriculture,
wholesale/retail and information and communication sectors. Inflation has been
high,(above the 3 -7 percent target range) averaging 28.5 per cent in 2013 and slowed
to 23.8 per cent in 2014 on the back of a slowdown in non-food inflation reflecting the
pass-through effects of the kwacha appreciation since January 2014. As of May 2015
inflation stood at 19.5 per cent largely due to a decline in food inflation and non- food
inflation as a result of the impact of the decline in oil prices. Budgetary operations
deteriorated in 2014 following the withdrawal of budgetary support from donors due to
the discovery of theft of Government funds (Cashgate scandal) in late 2013.
Consequently, the fiscal deficit to GDP ratio worsened from 1.6 per cent in 2013 to 6.3
per cent in 2014, while the proportion of public debt to GDP also worsened to 65.5 per
cent in 2014 from 59.4 per cent in 2013.
To address the above less satisfactory macroeconomic situation, the Reserve Bank of
Malawi has put in place an appropriate monetary policy framework aimed at lowering
inflationary expectations and to safeguard financial sector stability. Similarly, the design
of the 2014/2015 Budget complements monetary policy by controlling and reducing
fiscal expenditures.
The Panel therefore, advises as follows:
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Support and encourage Malawi Authorities to intensify implementation of the
above Monetary and Fiscal policies to contain inflationary pressures and anchor
inflation expectations;
Support and encourage Malawi to implement the primary remedial policy
intervention strategy, namely, the Malawi Growth and Development Strategy II,
which is aimed at redressing the structural inadequacies of the economy to attain
sustainable growth and development.
In concluding, the Panel thanked Lesotho and Malawi Authorities for volunteering to be
a test case; appreciating that although there are no enforcement mechanisms to ensure
that Member States adhere to the agreed MEC targets, the peer review process affords
Member States the opportunity to learn from one another encourage each other to
perform well and build capacity for the implementation of the MEC programme. In
addition, the Panel agreed that Angola,Swaziland and Tanzania will be the next State
Parties to be reviewed during 2015/2016.
The Panel expressed their heartfelt gratitude to the Government and the people of the
Republic of Zimbabwe for their warm reception and hospitality extended to them during
the course of the meeting.
Bulawayo, Zimbabwe
3 August, 2015
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