Global economic outlook threatens stability—RBM

The Reserve Bank of Malawi (RBM) says risks to global economic outlook could threaten the country’s financial stability in the short-term.

In its Financial Stability Report, the central bank cited trade tensions between the United States (US) and China, higher-than-expected inflation in the US and a ‘no-deal Brexit’ agreement in the United Kingdom (UK) as some of the risks to financial stability.

RBM said this could constrain financing and growth for many sub-Saharan African (SSA) countries, especially the region’s frontier economies, which rely heavily on global markets to finance developmental needs.

Reads the report in part: “The slowdown in global economic activity as well as a decrease in economic activity of the SSA might lead to reduced demand for Malawi’s exports.

“In addition, tight global financial conditions could constrain financing and growth for many SSA countries, including Malawi.”

Weighing in on this issue, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe observed that Malawi’s over-reliance on exports of non-essential goods has put the country at a disadvantage amid emanating risks to global growth outlook

“Being that we have no or little influence on these developments, we can only hope for better outturns. Because we have not become a critical supplier to economies that rely on our exports, we are indeed bound to be the ones disadvantaged the most.

“It is thus important that we inwardly work on making ourselves relevant which includes value-adding to ensure we export essentials whose demand can hold more even where the buyers’ economies are struggling,” he said.

But Catholic University dean of social sciences Gilbert Kachamba said with the country’s minimal contribution to the international trade and finance, there could be little impact.

“SSA exports to the USA are mostly semi-processed goods. So, I don’t think this will act as a barrier to us. Hence, we need to look at this as an opportunity because US is a big market.

“We need to make sure that we capitalise on manufactured goods because China now is having difficulties to export to the American market,” he said.

A study by the German Development Institute (DIE) estimates that 3.4 percent of Malawi’s total exports enter the UK market, translating to K30 billion in export earnings, out of the total exports valued at K807 billion.

Malawi’s contribution to the African Growth and Opportunity Act (Agoa), on the other hand, has remained static in the past two years at 0.15 percent of the global share, which has 164 members, according to the 2019 Trade Policy Agenda and 2018 Annual Report on the Trade Agreements Programme Office.

Malawi Government also has bilateral trade agreement with China.

Ministry of Industry, Trade and Tourism spokesperson Mayeso Msokera said in an interview on Monday that the slowdown in output in the manufacturing and processing industries in China and US may reduce demand, particularly in the commodity exporting economies.

“Countries like Malawi have been benefiting from preferential access to the British market through the EU’s Generalised Scheme of Preferences.

“So, if preferential market access arrangements are not maintained, then developing countries will suffer though decline in their UK exports,” he said, but added this could also present an opportunity.