covid-19 to worsen trade gap—OXFAM
Malawi’s trade gap is expected to worsen this year as the country intensifies imports of healthcare related items in the wake of Covid-19 pandemic, Oxfam has said.
In its latest policy brief released on Tuesday, Oxfam fears that the country’s Covid-19 pandemic response will likely increase fiscal deficit, depress the real sector and potentially fuel inflation.
Oxfam says the country’s external sector was the first to be affected by global lockdowns and travel restrictions, resulting in an immediate fall in inbound goods and passenger traffic.
This projected a decline in demand for the country’s intermediate and capital goods in the medium-term.
Reads in part the policy brief: “Prior to emergence of Covid-19, Malawi’s merchandise imports exceeded exports by $1.8 billion [about K1.3 trillion].
“Overtime as the trade deficit grew, the capacity of Malawi’s exports to support her imports has declined from 77 percent of exports in 1995 to just 35 percent in 2019. But Covid-19 can make this worse by increasing imports of healthcare related products.”
Figures from the Ministry of Finance, Economic Planning and Development show that Malawi’s exports grew by 16 percent in 2019 to $1.187 billion (about K866 billion) from $1.021 billion (about K745 billion)in 2018.
On the other hand, imports value slightly jumped to $2.895 billion (about K2.1 trillion) in 2019 from $2.827 billion (K2 trilion) the year before.
But Oxfam observes that the presidential directive requiring the “closure” of borders, restriction of movement of goods and people, except for essential goods such as petroleum, fertilisers and pharmaceuticals, disrupted supply chains and import and export arrangements.
“To the extent that Malawi will continue to import essential imports but not export as much. Covid-19 response will affect the country’s balance of payments position,” it says.
After registering its first three confirmed Covid-19 cases on April 2 this year, the Malawi Government announced wide-ranging public health measures in the fight against Covid-19 that included an abortive national lockdown that was to take effect on April 18 2020.
But Oxfam says Covid-19 will not only affect all the four accounts of the macro-economy—real, fiscal, monetary and external—but its impact will also likely be more localised in certain sectors than others.
Weighing in on the impact of the pandemic on the exchange rate as well as foreign reserves, Oxfam says the impact will be a function of how the government of Malawi chooses to pay for its healthcare inputs.
Oxfam says if Malawi’s response requires the use of its own foreign exchange reserves to procure medical equipment and personal protective equipment (PPE), then the response will likely deplete foreign exchange reserves.
“However, if as has hitherto been the case, much of the medical equipment and PPE come in the form of foreign aid, it will shore up Malawi’s forex reserves and prop up the exchange rate.”
Oxfam says foreign lockdowns, curtailment of international travel and other measures, have disrupted industry supply chains, including acquisition of intermediate and capital goods.
In an interview on Tuesday, Oxfam in Malawi country director Lingalireni Mihowa said the Covid-19 pandemic has brought unprecedented challenges globally, stressing that Malawi has not been spared the negative shocks.
She said: “Big and small economies have been battered and Malawi’s economy hasn’t been spared. The pandemic has also exposed systematic inequalities in the social political and economic systems.
“This prompted Oxfam to do the analysis to put into the spotlight the impact of Covid-19 to the economy of the country and most importantly inform government and other key stakeholders on the policy options that the country should consider to reduce the impact.”
In his 2020/21 Budget Statement, Minister of Finance, Economic Planning and Development Joseph Mwanamvekha admitted that the local economy continues to be affected by the twin crises of post-election demonstrations and the Covid-19 pandemic.
