The Economist Intelligence Unit (EIU) says the country’s current account deficit is to remain sizeable between 2021 and 2025 on account of increased export volumes of agricultural products supported by higher global prices.
This is, however, despite the country’s current account deficit—measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports—traditionally been large.
In its recent update on Malawi, EIU said in the past decade, the current account deficit has averaged just under 19 percent of the gross domestic product, or K1.7 trillion.
In an interview, Ministry of Trade spokesperson Mayeso Msokera said for some time, there has been a general slowdown in production, particularly for tobacco, combined with decreasing prices, which led to a decline in Malawi’s export earnings.
He said: “A few years ago, production in most of the sectors was also dampened by the intermittent power outages. However, it is pleasing to note power supply has improved.”
“Through the implementation of the National Export Strategy [NES] II, we expect Malawi’s trade balance to improve.”
Among other things, NES II is focusing on diversification of export markets and products and enhancing industrial development through manufacturing of value-added products for exports.
Msokera said government also expects the commencement of trading under African Continental Free Trade Agreement (AfCFTA) to boost exports through expanded market.
As a share of GDP, the EIU expects that trade deficit will narrow gradually throughout the forecast period as export growth outpaces rising import spending from 2021 as economic growth quickens and work commences on capital projects, particularly in the energy sector.
Meanwhile, Reserve Bank of Malawi (RBM) figures show that merchandise trade for the second quarter of 2021 resulted in a wider deficit of $490.70 million (K394.20 billion) than a deficit of $413.70 million (K325.00 billion) recorded in the previous quarter and a deficit of $359.90 million (K267.50 billion) recorded in the second quarter of 2020.
The outturn was attributed to a larger increase in imports of $150.30 million than the rise in exports of $73.40 million.
Specifically, imports amounted to $765.40 million (K614.20 billion) during the review quarter against $615.10 million (K482.20 billion) recorded in the first quarter of 2021.
Similarly, exports rose to $274.80 million (K220.00 billion) during the second quarter of 2021 from $201.40 million (K157.20 billion) recorded in the previous quarter and this was supported by an increase in exported legumes and pulses.
National Working Group on Trade Association chairperson Frederick Changaya earlier observed that lack of diversification and politicisation of trade policies is stifling trade activities in the country.