Kwacha depreciation to moderate, says EIU
The Economist Intelligence Unit (EIU) has projected that kwacha’s depreciation will moderate this year largely due to rising foreign investment inflows and export earnings from the agricultural sector.
The EIU—a firm within the Economist Group which provides forecasting and advisory services—said the inflows and the earnings will help to narrow the foreign exchange shortfall the country is experiencing.
Reads the report in part: “In the 2022 State of the Nation Address, President Lazarus Chakwera outlined the need for foreign exchange reinforcements. Therefore, to further increase forex earnings from gold, the government plans to buy approximately 1.5 metric tonnes in gold by 2025.
“Similarly, the central bank will within the first half of 2022 commence purchasing gemstones, all of which will have a positive impact on forex revenue and foreign exchange.”
But the firm, in the forecast contained in the January Economic Report by Nico Asset Managers Limited, indicated that the large current account deficit, though declining, will continue to exert downward pressure on the kwacha this year.
The firm said the average value of the kwacha is expected to weaken by an average of three percent a year to K961 to the dollar at the end of 2026.
In Malawi, 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 averaging just under 19 percent of gross domestic product (GDP) in the past decade.
Market and investment analyst Bond Mtembezeka said in an interview it will take time for Malawi to get back to the normal days because of the continued supply and demand imbalances.
He said the country needs deliberate efforts to channel resources to productive sectors of the economy.
Market analyst Cosmas Chigwe said the country needs to work with speed to arrest the kwacha depreciation by addressing structural challenges.
He said: “We continue to have a deficit between supply and demand of foreign exchange and the kwacha will continue responding to this.
“There will always be negative pressure on the direction of currency as long as the balance of payments remains negative.”
Minister of Finance and Economic Affairs Sosten Gwengwe indicated government will this financial year focus on export diversification and import substitution, among other issues.
