Drought widens current account deficit—KPMG

Drought that hit Malawi in 2016 widened the current account deficit to 15.5 percent of gross domestic product (GDP) recorded at $5.4 billion (about K3.9 trillion), an audit, tax  and advisory services firm KPMG has said.

The widening current account deficit from the previous year’s 9.4 percent of GDP means that the country’s value of goods and services it imported exceeded the value of goods and services it exported.

In its latest economic snapshot for Malawi for first half of 2017, KPMG said drought affected the country’s trade performance, denting the country’s export potential.

But the firm said over the next decade, as agricultural exports and donor aid recovers, the current account deficit is expected to narrow.

Reads the report in part: “However, if the government is not able to successfully implement fiscal consolidation and rein in corruption, foreign donors will be reluctant to provide donor aid to Malawi and the current account balance would suffer.

“A smaller fiscal deficit together with a narrowing current account deficit, will reduce the country’s reliance on debt. There are, however, concerns that fiscal consolidation will not be meaningfully consolidated due to the political consequences thereof”.

Malawi has continued to suffer from a negative trade balance in general largely due to the country’s insatiable appetite for foreign goods and relies on imported inputs for production.

This scenario is despite government implementing a number of initiatives such the National Export Strategy (NES) and the Buy Malawi Strategy (BMS) which are meant to ramp up production of goods for the export market.

The International Monetary Fund (IMF) forecasts that the current account deficit is expected to narrow to 12.5 percent and 9.1 percent of GDP in 2017 and 2018 respectively.

In an interview yesterday, Chancellor College economics professor Ben Kaluwa said the country’s current account performance can be improved within two years if the country implements right policies.

“We can do a lot in two years to narrow this current account deficit and this involves reducing what we import and diversifying our export base within these years,” he said.

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