Malawi’s trade balance will in the short to medium-term continue to worsen owing to continued inadequate exports and Malawi’s dependence on fuel and capital imports, an advisory and investment firm has warned.
The firm, Nico Asset Managers in its annual economic report for 2020 said although export earnings are forecast to increase between 2021 and 2025, amid a gradual recovery in external demand, import spending is also projected to pick up.
The report reads in part: “The services account deficit will remain broadly flat, before declining in 2023 and 2025, as service receipts from tourism increase.
“The deficit on the primary income balance reflects profit repatriation by the mining sector and is also expected to remain flat before widening slightly towards the end of the forecast period as coal mining picks up.”
The forecasts, according to the firm, are however contingent on normal rainfall patterns and a gradual economic recovery from the Covid-19 pandemic as such any major disruption would prompt a downward revision to agricultural exports and an upward revision to food imports, causing the deficit to widen more.
Malawi’s external balance continues to be in deficit as imports remain above exports, a situation which has left the market experiencing foreign exchange supply shortages and the Covid-19 pandemic has exacerbated the situation.
Reflecting this development, the kwacha recorded a mild depreciation and traded at K770.84 per US dollar as of end December 2020 from K738.87 in December 2019.
Reserve Bank of Malawi (RBM) recorded trade deficit stood at $1.5 billion during the first nine months of 2020, compared to a deficit of $1.1 billion recorded in the corresponding period of 2019.
Cumulatively, from January to September 2020, exports amounted to $0.5 billion against imports of $2 billion.
Malawi’s economy is agro-based where Agricultural products dominate Malawi’s export basket accounting for about 80 percent of Malawi’s export basket, as such the country’s exports also depend on seasonality factors.
According to economist Edward Chilima it will be hard for Malawi to make the most of international trade if the country does not invest in sectors it is good at and Small and Medium Enterprises (SMEs)
“We have not invested in areas where we have comparative advantage enough to create industries that can produce and export.
“To produce and export, we needed to invest quite heavily in small and medium enterprises that can produce quality products and in large and consistent quantities but our financial system is not designed to deliberately promote SMEs to assist them grow and compete on export market. Because of this, our SMEs have remained small and medium, just producing for local consumption,” he said in an earlier interview.