(Updates with finance minister comments starting in second paragraph.)
June 3 (Bloomberg) -- Malawi’s economy will probably expand by 6.9 percent this year, driven by higher mining and agricultural output, even though foreign aid declines, Finance Minister Ken Kandodo said.
The southern African nation’s economy is estimated to grow 6.6 percent next year while inflation will average 7 percent, Kandodo said in a budget speech to parliament in Lilongwe, the capital, today.
“These growth rates are expected to be anchored by strong performance in agriculture sector as it rebounds, as well as mining and construction sectors,” he said.
The U.K. has stopped aid to the country after President Bingu wa Mutharika expelled the U.K. high commissioner because of a leaked cables criticizing his leadership. The government said it would budget for less aid this year.
Kandodo said spending for the fiscal year through June 2012 would decline 2 percent to 304 billion kwacha ($2 billion) and forecast revenue and aid at 307.7 billion kwacha. The proportion of aid of total revenue dropped to 21 percent from 30 percent, he said.
The state will prioritize recurrent spending and use aid funds for development projects, Kandodo said.
Tobacco earnings will probably drop 33 percent to $300 million due to lower prices and a high rejection rate of the leaves during sales this year, Kandodo said.
Malawi is the world’s biggest grower of burley tobacco and the crop is its main foreign-exchange earner. Burley tobacco is a lower-grade variety of the leaf used to fill cigarettes flavored with higher-grade flue-cured tobacco.
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