Foreign exchange challenges the country is experiencing helped to narrow the trade balance by 68 percent from $2.07 billion (about K2.1 trillion) in 2021 to $564.41 million (about K574.26 billion) in 2022.
This is according to the 2023 Malawi Government Annual Economic Report, which is prepared by the Ministry of Finance and Economic Affairs as part of the budget documents.
The report shows that the narrowing of the trade deficit by 68 percent was due to the foreign exchange crisis in 2022, which impeded the importation of essential commodities.
According to the report, the importation of pharmaceuticals, fertiliser and diesel fell in 2022 by 80 percent, 37.11 percent and 30.04 percent respectively, as a result, imports decreased by 49 percent in 2022 compared to $3.08 billion (about K 3.1 trillion) in 2021.
Reads the report in part: “Trade balance narrowed in 2022 on reduction of imports. This was on the account of the scarcity of foreign exchange which restricted importation.”
The report further showed that exports also declined by 4.5 percent from $1.01 billion (about K1.02 trillion) in 2021 to $956.9 million (about K973.60 billion) in 2022.
The decrease in exports, according to the report, was mainly explained by the low productivity within the agricultural sector which remains a great contributor towards national exports.
It said the adverse weather conditions experienced in the 2021/22 season affected the harvest of traditional export commodities such as tobacco and sugar, which claim about 40 percent and 10 percent, respectively of the country’s export basket.
“Volume exports for tobacco and sugar declined in 2022 by 21.06 percent and 73.43percent respectively during the year,” reads the report.
Malawi’s export basket continued to be highly dominated by agricultural products, which accounted for 60 percent of export basket.
The country’s wide trade deficit, the difference between imports and exports, has been a norm where imports outweigh exports despite the country having various trade policy interventions to narrow the gap.
In the 2023/24 National Budget Statement presented in Parliament on Thursday, Minister of Finance and Economic Affairs Sosten Gwengwe admitted that the trade balance remains a challenge, but highlighted that government will continue to address issues of export diversification and import substitution.
He said government will strengthen the balance of payment position as well as promoting local manufacturing.
Government is also banking on the National Export Strategy II (NES II) (2021 – 2026), which is anchored on industrial development through manufacturing of value-added products for exports, to close the trade balance.
National Working Group on Trade Policy Frederick Changaya yesterday urged the replacement of traditional exports of produce with high-value added products to penetrate the export market and close the trade balance.
“We export cheap produce and import high-value commodities,” he said.