Malawi’s trade deficit in the year to September this year has jumped to $1.7 billion (about K2.8 trillion), a development experts say could put pressure on the kwacha and foreign exchange reserves.
During the same period last year, the country’s trade deficit stood at $1.6 billion (about K2.7 trillion), which shows that imports continue to outperform exports.
Data from the Reserve Bank of Malawi (RBM) shows that within the review period, imports of goods and services stood at $2.4 billion (about K4.2 trillion), which is higher than total exports recorded at $651.6 million.
The data further shows that the highest deficit during the review was recorded in May at $238.5 million (about K417 billion) and dropped to $232 million in June (about K406 billion) before dropping further to $217.7 million (about K381 billion) in July.
Malawi recorded its best performance in terms of exports in August at $183.9 million (about K322 billion) before easing to $123.4 million (about K216 billion) in September, according to the report.
Reads part of the RBM Monthly Economic Review for September 2024: “The imports of commodities rose to $316.4 million [about K554 billion] in the review month from $313.9 million [about K549 billion] in August 2024.
“The uptick was mainly due to increased purchases of fuel, fertiliser, printed books and machinery.”
Commenting on the development, Catholic University of Malawi economics lecturer Derrick Thomo cautioned that the trade deficit will put pressure on the kwacha as the country will need foreign exchange to pay for imports while earning less from exports.
On his part, Catholic University economics lecturer Greenson Nyirenda said the pressure on the local currency will worsen because the volumes of imports is inelastic and does not fluctuate as much compared to producing countries where currency depreciations improve trade.
Scotland-based Malawian economist Velli Nyirongo said in an interview yesterday that the depreciation of the kwacha and the continued deteriorating foreign exchange reserves can create a feedback loop where the crises would reinforce each other.
“A self-perpetuating cycle exists between kwacha depreciation and the trade deficit,” he said.
Nyirongo said as the kwacha weakens, the cost of imports rises in local currency terms, making foreign goods more expensive. This means that the inflationary effect can widen the trade deficit further as Malawi spends more kwacha to acquire the same quantity of foreign goods.
