The Reserve Bank of Malawi (RBM) says the slowdown in global economic activity could negatively affect demand for Malawi’s exports as well as pricing of the country’s strategic imports such as oil.
The bank’s analysis on the financial stability points to elevated vulnerabilities in the global financial systems which include rising corporate debt burdens; increasing holdings of riskier and more illiquid assets by institutional investors and greater reliance on external borrowing by emerging and frontier market economies.
Reads the analysis in part: “On a positive note, the easing of global financial conditions as largely characterised by dovish global monetary policy stance is expected to support the financing and growth for many Sub-Sahara African countries, including Malawi.
“Besides, regional forecasts point to more favourable climatic conditions for the 2019/20 agricultural season, and this is expected to bolster the country’s economic growth, supporting the domestic financial stability.”
Malawi’s economy is largely affected by external economic developments which experts partly blame on trade imbalances as imports outweigh exports, a development which contributes to economic vulnerability.
National Working Group on Trade Policy chairperson Frederick Changaya said the country’s economic situation is at the mercy of external factors.
He said: “If you compare with a lot of economies around us, you will find that they have developed a lot of value chains and systems whose structures easily attract major investors and help to diversify their economies. Ours is an imported economy by investor and by consumption.”
Meanwhile, economics lecturer at University of Malawi’s The Polytechnic Betchani Tchereni said Malawi needs to diversify the economy away from a predominantly importing to predominantly exporting country to become more competitive.
He said: “We largely depend on exports of raw materials; we are the ones who are hit most because we do not add value to our products. The implications of global economic slump are very dangerous.
“We should expect that our foreign exchange reserves are going to go down and for a country that is predominantly importing it simply means there is going to be scramble for small forex reserves that we may have.”