Malawi warned on weak global
The fragility in the global economy will likely dampen demand for Malawi’s major exports and result in declining remittances from abroad in 2013 and beyond, local economic experts have warned.
The country is also risking reduced access to foreign capital, according to the experts, which would make access to letters of credits difficult.
The warning has been triggered by Blantyre-based Nico Asset Managers Limited which, in its February 2013 report, has provided insights into major economic highlights.
“Slower global recovery could result in dampening export demand for major export commodities i.e. tobacco, tea, cotton and sugar and also lead to declining investor interest in Malawi,” said the firm.
The global economy, especially the Euro area, is currently reeling from a deep recession with a debt crisis still taking its toll on its major economies.
Europe’s economy remains, by far, the biggest anchor on global growth, according to the International Monetary Fund (IMF).
Europe is one of Malawi’s exports destinations and most European countries have over the years been major contributors to Malawi budget support, apart from pouring resources to individual projects.
A possible collapse in terms of aid and trade inflows from EU to Malawi could bruise the already fragile trade gap which has persistently incurred deficits as imports outstrip exports value, thereby exacerbating foreign currency shortage.
However, the debt crisis in the euro area has seen depressed lending, investment and private consumption throughout much of Europe, which has curbed imports of goods and services from other countries.
But commenting on economic risks to Malawi in the wake of weak global economy, Nico Asset Managers said the country risks impaired economic growth and Balance of Payments (BOP) due to declining exports and low foreign investments.
It says the country also risks declining tourism levels on account of weak global economy which it says could lead to lower foreign earnings into Malawi.
“Rising global oil prices coupled with a weakening local currency is likely to result in rising domestic fuel prices. This could lead to increased instability of prices and worsen the burden of soaring inflation rates in the economy.”
Reserve Bank of Malawi (RBM) Governor Charles Chuka, who also chairs the Monetary Policy Committee (MPC) meeting of the central bank, expressed hope last week that global growth is projected to strengthen marginally to 3.5 percent in 2013 from 3.2 percent in 2012 as the factors underlying soft global activity are expected to subside.
“As a result most commodity prices are expected to ease due to insufficient demand to keep pace with raw-material production,” said Chuka.
