This has been the case because the IMF programmes generally advocate contractionary fiscal and monetary policies that have a negative effect on levels of public investment in Malawi.

The deteriorating fiscal situation has therefore forced government to resort to borrowing heavily from the domestic market which in turn has crowded-out the private sector through scarcity of financial resources and prohibitive interest rates.

Financial Markets and Interest Rates

The need to meet domestic debt service requirements saw yield rates on some Treasury Bills tenors increase. According to the auction results of 15th February 2002, the rates for the 91 and 182 days tenors increased to 46.40% from 46.16% and 45.86% from 44.52%, respectively. The yield rate for the 273 days remained unchanged at 44.63%. During this auction, K250.3 million was raised against the bid amount of K282.8 million.

The low turn up for February 19th auction of the RBM bills resulted in the issue of all the bids amounting to K494.03 million. This saw slight movement in the yield rate for the 63 days tenor when it declined marginally to 46.41% from 46.42%. On the other hand, the yield rate for the 91 days tenor increased to 46.63% from 46.37%.

World Economic Review

US Economy

Optimism for a revival in the US economy remains strong albeit cautious in view of the continued concerns in the financial and corporate sector as a result of Enronitis. This optimism is on the back of better than expected economic figures after the reduction in the trade deficit was experienced in December. It is a likely that the fourth quarter GDP figures may be significantly revised upwards in the coming week. There is however concern that spending growth will not be sustained going forward, more so if asset prices remain vulnerable.

Euro Zone

Euro Zone economic news has continued to be uninspiring with the trend not expected to change in the short term. A significant recovery should occur, but there will certainly be fears that the Euro-zone will fail to equal the US growth rates in the medium term with concerns over the rate of productivity growth. This will as such entail that fears of long-term capital outflows from the Euro-zone over the next few months, more so if the indications of a rebound in the US economy continue.

International Currencies

The dollar continues to be the currency market's preferred unit and will remain relatively unaffected in the medium term at least, especially with the current lack of alternatives to the Greenback. The problem arises from the fact that there are still doubts over the underlying performance of the currency. The latest figures for capital flows indicate that there has been a net flow of equity funds out of the dollar markets over the past few weeks, which have not been helped by a drastic decline in merger and acquisition activity, despite issuance of corporate bonds remaining relatively sound. This means that the continued uncertainty over the US corporate sector has the potential of impacting the dollar negatively in the medium term.

Regional Emerging Markets

Zambia's Finance Minister on March 1 indicated the he anticipated real gross domestic product (GDP), driven by a recovery in agriculture and persistent growth in tourism as well as agriculture, to expand by 4.0% in 2002. Lower than the 5.2% attained last year. On the other hand, inflation is expected to fall to 13% from 18.7%. According to the Finance Minister inflation should drop to single-digits from 2003 onwards with the country's budget deficit at 3% in 2002, a decline from 4.7 percent in 2001. The deficit figure for 2001 was significantly lower than the 8% of GDP projection, which was posted by the Treasury last month. Officials say this 2001 projection had been reduced sharply after some balance of payments inflows from foreign donors. Zambia's external debt had grown to $7.3 billion last year from $6.3 billion in 2000 after many foreign lenders failed to deliver debt relief under the enhanced initiative for Highly Indebted Poor Countries (HIPC).