Firm sees current account narrowing
Malawi’s current account deficit may narrow moderately this year, as exports are expected to improve despite an elevated import bill, investment and advisory firm Nico Asset Managers has projected.
The current account deficit—a measurement of a country’s trade where the value of goods and services it imports exceeds the value of produce it exports—has traditionally been large in the last decade.
Malawi’s current account is structurally in deficit, which in 2022 was aggravated by a commodity price shock occasioned by the Russia and Ukraine war.
But Nico Asset Managers in a latest economic review report says the medium-term outlook is for some improvement in terms of trade, causing the current-account deficit to narrow considerably, potentially reaching 9.3 percent of gross domestic product (GDP) from an estimated 24.6 percent of GDP in 2022.
“In 2023 though total exports are likely to be hampered by a global economic downturn and domestic production constraints, the possible commercialization of agriculture to support tobacco and other key agricultural commodities exports from 2024 will boost exports.
“On the other hand, mining, which has been held back in previous years by limited investment, is likely to come online, raising total exports which are expected to average 13.8 percent of GDP in this year compared with 12.9 percent of GDP between 2018 and 2022,” said the firm.
The Firm also expects that bounce-back in the agricultural sector will help to contain the import bill as local food supplies improve, causing the current account to narrow to levels well below those prior to the Covid-19 pandemic.
Presently, figures from the National Statistical Office show that Malawi’s external position weakened substantially in 2021 where the current account deficit stood at K1 411 993.17 from 1 099 053.11 in 2020.
Similarly, merchandise trade as of October 2022 resulted in a deficit amounting to K20.6 billion, following another deficit of K31.1 billion recorded in September 2022.
Owing to the under performance of the current account, Malawi’s gross official reserves have lately been under pressure due to the country’s rising demand for imports against low exports.
Malawi’s economy is agro-based where Agricultural products dominate Malawi’s export basket accounting for about 80 percent of Malawi’s export basket, as such the country’s exports also depend on seasonality factors.
Economists have since warned that the country will continue to experience a wide current account deficit if it does not invest in sectors it is good at and expand its export basket.
Investment and advisory firm Bridgepath Capital Limited in an earlier report said the current account deficit remains an issue of concern as Malawi’s export earnings are concentrated in a narrow basket of agricultural goods.
Government is, however, currently implementing policies and strategies to narrow the trade gap.
Among other policies and measures, according to ministry of Trade spokesperson Mayeso Msokera, the country continues to build the export readiness of Malawi exporters and developing regional and global value chains.
