Current account deficit to narrow—Report
Malawi’s overall current account deficit is expected to turnaround from an estimated 15.8 percent of gross domestic product (GDP) in 2019 to 13.1 percent in 2020, as import growth falters this year, local investment advisory firm Nico Asset Managers has said.
The firm, in its February economic review report expects export performance will be supported by higher production of cash crops, including tea, soyabeans and sugar, adding commodity prices for these goods are also expected to steadily increase in 2020 to 2024.
“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, causing the deficit to widen,” reads the report in part.
However, the investment advisory firm argues that export growth will continue to be held back by infrastructure bottlenecks, lack of finance for farmers, low-tech agricultural techniques and weakening in global demand.
“Receipts for tobacco—Malawi’s biggest source of foreign exchange—will continue to be relatively flat as global demand remains subdued. Overall export growth will struggle to reach its potential,” reads the report.
Malawi continues to suffer from a negative trade balance in general largely due to the country’s appetite for foreign goods as it heavily relies on imported inputs for production.
Experts have since argued that the imports of essential as well as non-essential goods and services are overvalued a development which gives imports an upper hand over Malawi’s exports.
University of Malawi senior lecturer in the Economics Department Exley Silumbu observed that the country exports cheaper commodities because most products are unprocessed yet it imports processed items which are expensive.
“The country’s current account performance can be improved if the country implements right policies to diversify the economy which is predominantly agro-based,” he said.
Principal Secretary in the Ministry of Industry, Trade and Tourism Ken Ndala speaking recently said Malawi has to capitalise and advance on available strategies aimed to boost trade, adding that Malawi has to enter into more trade arrangements that seek to open foreign markets for our exports.
“The way forward is for firms to embrace the reality and hold hands in focusing and repositioning towards expanding to other markets. This is the more reason we undertake trade negotiations to facilitate exports while also safeguarding our nascent and strategic industries,” he said.
