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Economists Debate Effect of International Financial Crisis on Aid to Malawi

Economists in Malawi are watching the global financial storm known as the credit crunch with unease and uncertainty over its possible effects on the country's economy. Malawi is among the world's poorest nations and relies on donor aid for more than 40 percent of its national budget. Voice of America English to Africa Service reporter Lameck Masina, in Blantyre, says that members of both the government and the private sector are expressing concern about how the country can best respond to the effect of the global financial chaos.

Thomas Munthali is an economist with the World Bank in Malawi. He thinks in the short term Malawi may not be affected:

"I think for Malawi [this] may [feel like an] impact because we are very much [disconnected] from the international financial system. But if you are looking at where we have recession hitting global economy, [it's mostly affecting Malawi's] main trading partners. [So] we expect there to be a reduction in trade and that can affect growth [on the economy] in the coming year."

Munthali dismisses fears that the downturn in the international economy will make donors less likely to give aid because of concern about their own financial health:

"I don't think that there will be a withdrawal of funding by donors. For example this year donors seem to still be very committed to financing Malawi and I am sure this should be the case with the whole of Africa."

But he says once the crisis reaches its peak, donors may have a change of heart:

"Maybe next year when recession kicks in you could see the possibility of donors reducing their aid going to Africa because essentially the commitment depends on how much the [Western] economies have grown [or contracted]. So when the economies [show little growth] you expect the aid levels to be less."

Ephraim Munthali is spokesman for the Ministry of Finance. He told reporters that donors have not yet given any indication that aid will be reduced as a result of the global situation. He said over the past four years Malawi has sustained an average growth rate of more than seven percent. That's above the six percent benchmark considered necessary to meaningfully reduce poverty.

Statistics indicate that Malawi's GDP growth for 2008 has jumped from 7.4 percent to 8.7 percent. Economists attribute this to robust performance by the agriculture sector, especially the tobacco industry, which has registered record high revenue.

But an IMF survey in October projected that growth rates in sub-Saharan Africa would slow to 6 percent in 2008 and 2009, 5 percent lower than last year.

It says recent global economic turbulence will probably lead to a decline in the flow of private capital, remittances, and aid to Africa.