Malawi’s economy should brace for a bumpy ride following projections by the Tobacco Control Commission (TCC) that this year’s earnings from the main foreign currency earner will likely be lower than last year, an economist has said.
The tobacco regulatory authority has forecast that revenue from tobacco, which wires in about 60 percent of the country’s foreign exchange proceeds, will likely settle at around $300 million, a 17 percent drop from last year’s total of $362 million.
This comes hot on the heels of the continued withholding of budgetary support by the donors, from where the other chunk of foreign currency comes from, accounting for about 40 percent of the national budget.
Over the past five years, tobacco earnings have been fluctuating. In 2010, Malawi raked in $410 million from the leaf and earnings dropped to $293 million in 2011. In 2012, the earning dropped further to $177 million before picking up to $362 million in 2013.
University of Malawi’s Chancellor College economics professor Ben Kaluwa told Business News yesterday that the anticipated drop in tobacco earnings is worrisome and could affect the import cover—the number of months of imports that could be paid for by a country’s international reserves.
“Malawi has always relied on tobacco as the main foreign exchange earner and whenever the tobacco selling season is in progress, the import cover tends to pick up and the kwacha appreciates,” he said.
“This means that the drop in tobacco earnings has devastating consequences on the wider economy, more especially coming at the time donors are withholding their budgetary support,” said Kaluwa.
Malawi’s donors under the Common Approach to Budget Support (Cabs) are still withholding budget support and last November held on to $150 million that could have gone into the 2013/14 budget.
The financial year ended yesterday and government operations from today, July 1, will be funded using the four-month provisional budget of K210 billion which Finance, Economic Planning and Development minister Goodall Gondwe presented and was dully passed by Parliament last Friday.
It is not yet known if the donors will contribute to this year’s budget.
Weighing on the same, economist Colleen Kalua, who is the director of research at University of Livingstonia, said yesterday that foreign exchange, which is critical for importing fuel, fertiliser and medical drug among other, will likely dry out earlier than usual.
“Importing of critical imports will be impossible at some time of the year. This also means that the dollar will gain value while the kwacha will depreciate which could trigger a rise inflation,” he said.
A Blantyre-based investment analyst said since Malawi is a perpetual importing country and coupled with a huge hole created by donor aid freeze, pressure on foreign exchange will still persist going forward in view of the drop in tobacco earnings.
“The question is, who is going to fund that gap [created by donor aid freeze]?” he queried.
Tobacco contributes 13 percent to the national economy and employs millions of Malawians directly and indirectly.