Malawi current account deficit to improve

The International Monetary Fund (IMF) has projected that Malawi’s 2013 current account deficit will improve to 1.6 percent from 3.7 percent of the gross domestic product (GDP).

However, a local economic analyst has played down the projected improvement attributing it to donor inflows and not necessarily and anticipated improvement in international trade.

IMF in the April 2013 World Economic Outlook has further projected that Malawi’s 2014 current account deficit will marginally worsen to 1.8 percent and then to 3.8 percent by end of 2015.

A current account balance is the difference between the value of exports of goods and services and the value of imports of goods and services and net income and transfers from abroad such as foreign aid.

Commenting on the projection Umodzi Consulting business consultant Sungeni Segula said the improvement may be due to donor transfers into the country.

“Donor funding has indirectly affected the current accounting. Externally people have benefited from the economic activities brought about by inflow of donor aid. The current account is composed of goods, services, income and current transfers,” said Segula.

However Malawi’s Ministry of Finance spokesperson Nations Msowoya responding to a questionnaire on Monday said the projected improvement is based on reduction in imports and a rebound in exports.

“The account is expected to improve on a net basis between 2012 and 2013 mainly on account of a slowdown in imports of goods and services of about 5.3 percent. Exports are also expected to grow by 1 percent compared to 4.7 percent decrease in 2012. The result is an overall improvement in trade balance of 12 percent for 2013. In addition, current transfers are decreasing by 10 percent in 2013,” said Msowoya

Since 2005 Malawi has been running current account deficits except in 2007 in which it run a positive one percent balance.

In the region Angola is projected to achieve a surplus of 3.5 percent, and Botswana 3.9 percent of GDP. Ethiopia’s current account deficit is projected at 7.5, Kenya 7.4, Mauritius 9.8, Mozambique 25.4 percent, Zambia 0.4 percent and Zimbabwe 23 percent of GDP.

According to IMF Malawi’s economy will rebound by a staggering 5.5 percent this year while the Economic Intelligence Unit forecasts growth of 4.1 percent whilst the and government is targeting annual GDP growth of 5.7 percent by December 2013.