Malawi’s current account deficit is expected to take a knock from an estimated 18.20 percent of gross domestic product in 2018 to 15.20 percent in 2020, as import growth falters, investment advisory firm Nico Asset Managers has said.
The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
The firm, in its 2019 Mid-Year Economic Report expects the shortfall to continue to edge down to 14.5 percent of domestic product (GDP) in 2023, helped by a rise in agricultural exports with the import bill expected to fall in 2019-20 as international oil prices decline.
“However, these forecasts are contingent on normal rainfall patterns, and any significant disruption would prompt a downward revision to agricultural exports and an upward revision to food imports, thereby causing the deficit to widen.
“Export performance will be supported by higher production of cash crops, including tea, soybeans and sugar. The prices of these commodities are expected to increase in 2019-21, thereby supporting the export sector,” reads the report in part.
However, the firm observes that export growth will continue to be held back by infrastructure bottlenecks, a lack of finance for farmers, low-tech agricultural techniques and a weakening in global demand for tobacco.
Malawi has continued to suffer from a negative trade balance in general largely due to the country’s insatiable appetite for foreign goods and relies on imported inputs for production.
This scenario is despite government implementing a number of initiatives such the National Export Strategy (NES) and the Buy Malawi Strategy (BMS) which are meant to ramp up production of goods for the export market.
In an interview, Chancellor College-based economics professor Ben Kaluwa observed that the country’s current account performance can be improved if the country implements right policies to diversify the economy which is predominantly ago-based.
“We can do a lot in two years to narrow this current account deficit and this involves reducing what we import and diversifying our export base within these years,” he said.
RBM spokesperson Mbane Ngwira said earlier this year that the country needs to produce more, observing that the central bank is contributing to this direction through support it gives to the Export Development Fund (EDF)—a development finance institution with a particular focus on export—and other import substitution activities.
According to experts, recurrent current account deficits have a dent on the country’s gross official reserves and in turn affect the value of the local currency.
Imports of non-essential goods and services may imply that the local currency maybe overvalued; hence, encouraging imports and hurting exporters.
However, monetary authority policies are aimed at growing the country’s gross official reserves, at $1,076.01 million (5.15 months of import cover) as at 30 April 2019, , above the preferred three months’ which is regarded as a rule of thumb.