Malawi’s economy is fast losing steam and signs show a tough period going forward made worse by poor economic climate currently prevailing, a quarterly economic review report has said.
The 2016 Second Quarter Economic Review and Outlook by Blantyre-based Alliance Capital Limited released this week forecasts a volatile economic environment going forward characterised by scarce food, particularly maize, with high prices, a heavily depreciated exchange rate, an expected rise in fuel price on account of depreciated exchange rate, rising food inflation as the food deficit becomes more evident, increased domestic debt as the resource envelope continues to shrink due to a slow economy, a tight monetary policy to counter inflationary pressures and an elevated interest rate on government securities or Treasury bills (T-bills).
Economist Colleen Kaluwa yesterday agreed with the forecast by the investment management firm, saying all economic indicators do not look rosy.
He said there is still a long way to go before the economy fully turns the corner and start to show signs of growth.
In its analysis, Alliance Capital said the kwacha is expected to depreciate further in the coming quarter as
government starts importing agricultural inputs in readiness for the next agricultural season.
Reads the report: “The continued strengthening of the United States [US] economy will also exert pressure on the kwacha- dollar exchange rate.
“We expect domestic fuel prices to remain steady in the next quarter, however with one possible increase at the end of the quarter on account of depreciated exchange rate. We expect food prices especially maize and pulses to rise in the face of the prevailing food shortage.”
On inflation rate—currently at 21.5 percent as of May 2016, according to National Statistical Office (NSO)—the firm said food inflation is expected to increase as the food deficit becomes more pronounced.
This means the price of maize, now at more than K12 000 per 50 kilogramme (kg) bag, will continue to rise as government is struggling to fill up a 12.4 percent deficit relative to last year with imports from Zambia and South America.
On the price of fuel, recently maintained due to low premiums offered by suppliers in the 2016/17 supply contracts, resulting in lower landing costs for petroleum products, Alliance Capital said: “We expect steady oil prices on the global market and steady pump prices domestically. Therefore, we expect steady non-food inflation.”
But it said fiscal consolidation and public finance management is expected to improve, especially with the programme-based budgeting, but forecast an increase in domestic debt as the budget shrinks on account of a slow economy.
Malawi Revenue Authority (MRA) will find it tough to hit the target of K708 billion set in the 2016/17 National Budget, observes the r eport.
Interest rates on government securities or T-bills are expected to be elevated at around 29 percent and policy will still remain at 27 percent.
Interbank lending-lending between banks will also remain elevated at around 26 percent on account of volatile liquidity levels. n
