El Nino’s economic impact to be known in Feb—RBM

The Reserve Bank of Malawi (RBM) has allayed fears over potential economic fallout caused by El Nino, saying the real impact will be known after conducting a comprehensive review of the data in February this year.

In the latest Financial and Economic Review, the central bank projected that the growth of the manufacturing sector, which was expected to be propelled by growth in agriculture, would rebound from 0.4 percent last year to 4.4 percent this year.

RBM based its projections on the expected increased agricultural output complemented by the development of mega farms, improved electricity supply following the restoration of the Kapichira Hydro Power Plant and the availability of foreign exchange as a result of the approval of the four-year $175 million (about K295 billion) International Monetary Fund Extended Credit Facility (ECF).

But the assumptions could be disrupted following predictions by Relief Web and the Ministry of Agriculture that there could be lower output from the agriculture sector on account of the adverse impact of El Nino weather phenomenon.

The development is expected to reduce raw materials in the country’s agrarian economy for the manufacturing sector, the bulk of which come from the agriculture sector.

Speaking in an interview on Tuesday, RBM spokesperson Mark Lungu said: “Numbers will be reviewed in February 2024 and that should give a fair view of the economy.”

In a separate interview, economist Bond Mtembezeka said the projections are optimistic because while the electricity supply has improved in the past year, other drivers of the manufacturing industry were still constrained.

“The agriculture sector outlook is murky as we are not sure how El Nino will pan out,” he said.

Mtembezeka said the low credit extended to the manufacturing sector, which averaged 10.83 percent or K1.7 trillion of the K10.8 trillion extended to the private sector, will undermine the growth of the sector in the coming year.

He said: “It is likely that banks will continue to restrict credit to this sector on the basis that the economy is still weak and disposable incomes have been eroded by devaluation- induced inflation.

“This has a bearing on the demand for manufactured products and by implication has a bearing on manufacturers’ ability to service debt obligations from banks.”

A policy brief from the Centre for Agriculture Development and Research, a local think-tank based at Lilongwe University of Agriculture and Natural Resources, predicts that the prolonged dry spell, excessive heat and water stress could result in crop failures and food shortages.

If the prediction comes to pass, the government will have to spend about $125.9 million (about K214 billion) to address food shortages created by El Nino based on our calculations using the price of $270 (K459 000)per metric tonne of maize listed on global statistics website Statistica.