Event

After a civil servants’ wage strike, during which schools, international airports and hospitals were brought to a standstill, a new pay structure was agreed on and ended the strike after more than a week. Authorities settled on a pay increase of 61% for the lowest-paid public workers and 5% for those on the highest pay, while arguing that due to the weak national budget ‘other - still undefined - services will have to suffer’. For the first time since President Banda’s appointment after the sudden death of widely contested President Mutharika in April 2012, anti-government sentiment is being broadly manifested.

Impact on country risk

After President Banda took office she immediately introduced bold actions on structural economic reforms, including the devaluation of the local Kwacha currency with 49%, one of the key decisions to get back on track with the IMF. At the same time donors rebuilt confidence in the country and restored their aid programs, bearing in mind aid makes up for about 40% of the budget. While the desired competition-encouraging effects of the devaluation have been lacking, expensive imports have led to a financing gap on the external balance of payments in 2012. With foreign exchange reserves at a low level (2.8 weeks of import cover), fuel shortages are emerging together a high commercial risk. Simultaneously, social unrest is growing denouncing soaring living costs since the devaluation and the abolition of fuel subsidies. ONDD will therefore hold on to its stringent risk rating for the time being.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com