Business NewsFront Page

Slow economic recovery dampens forex outlook

The Reserve Bank of Malawi (RBM) says the slow recovery in commodity prices in the sub-Saharan Africa will affect accumulation of foreign exchange reserves needed to cushion the exchange rate against depreciation.

In its July 2021 Market Intelligence Report, RBM said this, in addition to rising global prices, poses a challenge to inflation management. 

Reads the report in part: “With respect to inflation, the major source of inflationary pressures for most sub-Saharan African countries was the rise in energy prices and, in some countries, an increase in food prices despite realising an above-average food crop harvest during the 2020/21 season.

Rising global fuel prices is a threat to domestic inflation outlook

“Looking ahead, the accelerating international oil prices following the strengthening of global demand will continue to pose a challenge to the inflation outlook across all countries.”

In the second quarter (April to June) of 2021, brent crude oil prices increased to an average of $68.6 (about K56 300) per barrel from $60.6 (about K49 700) per barrel in the previous quarter and $31.4 (about K25 700) per barrel in the second quarter of 2020.

The price increase during the review period reflected a rebound in demand as economies opened up following the widespread availability of Covid-19 vaccines and partly due to supply restrictions imposed by the Organisation of the Petroleum Exporting Countries (Opec) and non-Opec countries, according to RBM. 

In an interview on Friday, economic statistician Alick Nyasulu said inflation is under threat owing to the fuel prices and the weakening kwacha.

He said: “Non-food inflation is being sensitive to the depreciation of the kwacha and may continue to do so until we see a stable kwacha.

“Its triggers are mainly externally-driven than food inflation that is domestic in nature. Food inflation is likely to continue going down and overall inflation might take a slight downward trend, but not significant in view of the currency depreciation.”

Meanwhile, RBM figures show that the country’s top foreign exchange earners registered over 50 percent decline in exports with earnings from tobacco, sugar and tea exports falling from $111.9 million (about K91.8 billion), $44.6 million (about KK36.6 billion) and $49 million (about K40.2 billion) to $59.6 million ( about KK48.9 billion), $12.8 million (about K10.5 billion) and ($22.1 million (about K18.1 billion).

On the other hand, trade deficit during the review period worsened to $490.7 million (about K394.2 billion) from a deficit of $413.7 million (about K325 billion) recorded in the previous quarter.

Ministry of Trade spokesperson Mayeso Msokera said in an interview on Sunday that a slowdown in production, particularly for tobacco has led to a decline in export earnings.

Related Articles

Back to top button