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State Hegemony, Macroeconomic effects and Private Enterprise in Malawi

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  • Kalonga Stambuli

    (surrey institute of global economics research)

Abstract

This paper investigates the rationale for proliferation of state enterprises, implications for public sector expansion in Malawi, the fiscal, monetary and balance of payments effects of the public sector and implications for private enterprise development. The paper finds that high levels of aid and fiscal revenues triggered by buoyant export markets in the 1960s anchored a Stalinist-Marxist style public sector expansion intended to build socialism alongside a state bureaucracy and one party politics. However, collapse of export commodity prices in the late 1970s repositioned the Malawi economy in such a way that costs of state hegemony emphasized its own economic vulnerability. Large fiscal imbalances emerged as apprehensions over loss of political control heightened by pressures of multiparty politics forced government to maintain the large public sector. Under pressure from oil price inflation, the influx of Mozambican refugees and drought, government resorted to higher levels of deficit monetisation and fiscal reallocations; giving priority to state enterprise subvention. These were manifested in reduced public investment, surging inflation and stagnation in per capita GDP. Implications of public sector expansion and government’s intransigence to reform include restrictive industrial, trade and financial policies that depressed savings, hindered private investments and encouraged capital flight. The policy also encouraged public sector inefficiency and resulted in high public deficits, increased foreign borrowing and recourse to credit from the domestic banking sector. These have had serious implications for crowding out the private sector and debt service and balance of payments problems.

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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0211001.

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Date of creation: 04 Nov 2002
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Handle: RePEc:wpa:wuwppe:0211001

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Web page: http://128.118.178.162

Related research

Keywords: public sector economics; macroeconomics; state enterprise; private enterprises;

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  1. International Monetary Fund, 1997. "Corruption and the Rate of Temptation," IMF Working Papers 97/73, International Monetary Fund.
  2. Ritva Reinikka & Paul Collier, 2001. "Uganda's Recovery : The Role of Farms, Firms, and Government," World Bank Publications, The World Bank, number 13850, October.
  3. Paul Collier & Jan Willem Gunning, 1997. "Explaining African economic performance," CSAE Working Paper Series 1997-02.2, Centre for the Study of African Economies, University of Oxford.
  4. Manning, Nick & Mukherjee, Ranjana & Gokcekus, Omer, 2000. "Public officials and their institutional environment - an analytical model for assessing the impact of institutional change on public sector performance," Policy Research Working Paper Series 2427, The World Bank.
  5. Vito Tanzi, 2000. "The Role of the State and the Quality of the Public Sector," IMF Working Papers 00/36, International Monetary Fund.
  6. Vito Tanzi, 1998. "Corruption Around the World: Causes, Consequences, Scope, and Cures," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 559-594, December.
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