1. Budget Deficit

NARC’S Government will reduce the budget deficit and retain it at a low level to avoid borrowing from the Reserve Bank of Malawi and commercial banks for the purpose of financing expenditure.

2. Inflation

The rate of inflation in Malawi was modest during the 1970s and averaged less than 10 percent per year. Price controls and general macro-economic stability accounted for this. Since the 1970s, the rate of inflation has accelerated. The main factors have been shortages of goods caused by lack of adequate foreign exchange, sharp increase of import prices, increase due to currency devaluations, and budget deficits financed by domestic borrowing.

The most critical factor fueling inflation has been the myopic foreign policy of the MCP regime which facilitated the destabilization of Mozambique and the subsequent destruction of our shortest routes to the sea. So far their stop-gap monetary and fiscal policy measures have not succeeded in reducing the high rate of inflation. Management and control of inflation requires both structural changes in the economy in addition to prudent fiscal policy measures.

NARC’S Government will:

1. Seek budget deficit reduction through rationalization of public expenditure.

2. Pursue a strategy of controlling the growth of money supply.

3. Use financial policy instruments to moderate imported inflation.

4. Adopt measures that will improve the supply of both imported and domestically produced goods. - Establish an inflation regulatory body.

5. Encourage relating wage and salary increases to the growth of productivity of individual enterprises and to the health of the economy.

3. The Exchange Rate

Frequent and large devaluations of the Malawi Kwacha since 1982 have been a major cause of economic instability. Devaluations are executed when the external value of the Malawi kwacha is out of line with economic fundamentals.

To obviate the need for such (evaluations, NARC’S Government will take measures to:

1. Make the exchange rate more flexible.

2. Relate movements in the exchange rate to economic developments in and needs of the economy.

3. Review the appropriateness of the present exchange rate regime with the aim of adopting a different regime.

4. The Balance of Payment

The economy of Malawi is prone to balance of payments deficits. Between 1979 and 1992, overall balance of payments deficits were incurred in eight out of fourteen years. Balance of Payments deficit make the economy live on past receipts or on borrowings. NARC’S Government will, therefore, adopt appropriate monetary and fiscal policy measures referred to above to improve the balance of payments so as to realize surpluses and build foreign exchange reserves to an acceptable level.

5. Public External Debt

The level of total external public debt is large, estimated at $1.676 billion or MK7.542 billion as of 1991. The debt service ratio is 25% and is growing. To service this debt, more money is borrowed, putting upward pressure on domestic interest rates, large annual budgetary allocations are made, and scarce foreign exchange is used up to service the foreign component.

The worldwide drop in prices for Malawi's export commodities, which has been the prime source of the country's income, has exacerbated the heavy foreign debt burden of the country to the point where it now poses a colossal obstacle to Malawi's economic development. No single solution is available.

The NARC’S Government will seek fresh approaches with its debtors. These approaches should include requests for ultimate writing-off of the debt. Where possible this should be done in conjunction with programmes designed to increase productive capacity in agriculture and industry. Therefore, new debt should not recapitalize old debt, but it must fund new investment and its terms must be appropriately concessional. The NARC’S Government allocation of new debt investment will be based on economic as opposed to political expediency.