Import bill hits K789bn—report
Malawi’s current import bill at $762 million (K789 billion) as of July due to a surge in global commodity prices could exert more pressure on the current account deficit and the kwacha, experts have warned.
The Economist Intelligence Unit (EIU), the research and analysis division of the UK-based Economist Group, expressed the sentiments in a commentary contained in the Nico Asset Managers July 2020 Report released on Monday.
In the country brief, EIU said it expects the current account deficit to surge to 25.3 percent of gross domestic product (GDP) this year before a gradual narrowing over the forecast period to 12.1 percent of GDP in 2026.
EIU said the rising global commodity prices are translating into an increase in import bills for essentials, thereby widening the current account deficit.
Reads the report in part: “The fundamental driver of the large current account deficit in 2022 will typically be due to the high import bill attributed to food and fuel.
“Exports are expected to maintain their current momentum, but the cost of imports is expected to increase, offsetting export gains.”
The firm, however, says imports would be lower in subsequent years as global prices for both food and fuel retreat from multi-year highs. However, it said Malawi’s trade deficit will remain huge.
Meanwhile, 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 averaged around 19 percent of GDP in the past decade.
Available data contained in the Nico Asset Managers July 2022 Report shows that importation of strategic commodities such as fertilisers and fuel has been on the rise and contributed to a large increase in imports by $191 million (K198 billion) or 33.5 percent to $762 million as at July.
The data shows that importation of petroleum products rose by 104.5 percent to $158.3 million (about K164 billion), pharmaceuticals by 61.2 percent to $57.8 million (about K60 billion), fertilisers by 46.6 percent to $39.3 million (about K41 billion) and vehicles by 20.5 percent to $42.5 million (about K44 billion).
Speaking in an interview on Tuesday, Financial Market Dealers Association of Malawi vice-president Jim Kalua said the current account deficit will continue to widen, a development which calls for investment in other sectors to boost exports.
And in its recent economic review report, investment advisory firm Bridgepath Capital Limited said the growing current account deficit remains an issue of concern as Malawi’s export earnings are concentrated in a narrow basket of agricultural goods.
Reads the report in part: “Tobacco, which accounts for about 56 percent of total exports, will continue to be subjected to demand shocks.
“Adverse weather conditions may result in low harvests and trade revenues, which may influence macroeconomic stability, leading to higher inflation, greater currency volatility and weaker economic growth.”
Meanwhile, Malawi’s gross official reserves are already under pressure due to the country’s rising demand for imports, Reserve Bank of Malawi .
The official forex reserves for July 2022 decreased to $372.99 million or 1.49 months of import cover from $404.18 million, an equivalent of 1.62 months of import cover in July 2021.
The situation has in turn continued to strain the exchange rate movement, with the kwacha depreciating against all major currencies.
The Reserve Bank of Malawi in May this year devalued the local unit by 25 percent amidst a crippling shortage of foreign exchange.
Then, imbalances between supply and demand had been prevalent on the domestic foreign exchange market evidenced by low foreign exchange supply, declining official foreign reserves and widening spread of rates on the market.
