Bankers Association of Malawi (BAM) executive director Lyness Nkungula on Tuesday warned Malawians to brace for tough times ahead as the economic forecast for Malawi appears gloomy mainly due to food shortages, high interest and inflation rates, and the weakness in the value of the kwacha .
“People might need to brace for tough times ahead,” Nkungula warned when she made a presentation before the Budget and Finance Committee of Parliament in Lilongwe.
The analysis by BAM comes in the thick of other economic analyses pointing that currently, the economy is wobbling and in reverse gear based on the performance of key macroeconomic indicators.
The analysis also comes barely a week after Finance, Economic Planning and Development Minister Goodall Gondwe felt sorry for Malawians over the tough economic environment they are in.
Headline inflation now towers high at 22.2 percent in July from a rate of 21.3 percent in June 2015 as the food deficit widens on account of January floods that washed away key cash crop, including maize-Malawi’s staple food and a main driver of inflation.
Although banks have recently attempted to slash lending rates by responding to the cut in the Liquidity Reserve Requirement (LRR) by the central bank, economic analysts believe that the rates are still high at a range of 32 percent and 33.5 percent.
Nkungula said the devastating floods left a lot of fields damaged and as a result, the country does not have enough food in the fiscal year 2015/16.
She told parliamentarians that although a number of stakeholders tried to help with seed, the second planting did not help as the rains stopped earlier than expected.
As a result, the BAM boss explained that the inflationary impact of food shortage is huge on the economy.
On tobacco sales, Nkungula said the sales this year could not generate a lot of foreign exchange but said the leaf has not fetched high value as expected due to, among other things, poor grading.
“This will have an impact on the foreign reserves as tobacco is Malawi’s major foreign exchange earner,” she said.
On the performance of the local currency against other major currencies, Nkungula said it was strange to notice that the kwacha has been depreciating, trading in some banks at around K540 to the dollar despite ongoing tobacco sales.
She said ideally a weaker kwacha would boost exports as they become cheaper on the international market, but noted that Malawi may not have enough goods to export to take advantage of the weaker local currency.
“Consequently, a weaker kwacha at a time when tobacco sales are ongoing implies that we are likely to experience further depreciation of the local currency during the lean season,” she warned.