Worsening trade balance worries MCCCI
The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has decried persisting negative trade balance which it has blamed on the overvaluation of the kwacha against major trading currencies during the Bingu wa Mutharika regime.
The chamber has since expressed hope that the implementation of the reforms embedded in the 2012/13 budget are poised to expand export base and, consequently, turn Malawi’s negative current account balance.
Current account balance, which is one key component of a country’s balance of payment (BoP) position, is the sum of net exports of goods, services, net income and net current transfers.
Negative territory
But for a long time, Malawi’s current account balance has been in negative territory as imports have always surmounted the value of export to the international market.
Analysts have over the years blamed Malawi’s poor showing on the international trade on the strength of the kwacha which they argued made exports non-competitive or expensive while at the same time making imports, including non-essential ones, cheaper, thereby widening the country trade gap.
Malawi’s Finance Minister Dr. Ken Lipenga could not hide his worry when he presented the 2012/13 national budget over Malawi’s worsening current account balance which, he said, sharply deteriorated between 2009 and 2012 from negative $548.6 million to negative $845.5 million.
The 2012 government annual economic report indicates that total export value for 2011 were K223.4 billion (about $894 million at current exchange rate) against imports valued at K330.1 billion (about $1.3bn) putting Malawi’s trade deficit last year at K107 billion (around $428m)-the highest trade imbalance record in the last decade.
Reform measures
But in its post-budget analysis made available on Tuesday, MCCCI chief executive officer Chancellor Kaferapanjira argued that implementation of some key reforms in the budget could encourage import substitution which is key to growing an economy’s export base.
Apart from tax reform measures, others currently being implemented by the President Joyce Banda administration include the liberalisation of Malawi’s foreign exchange regime, removals of price controls on fuel and utilities to move towards market based economy as well as the resumption of the International Monetary Fund (IMF) Extended Credit Facility (ECF) programme with Malawi.
“The negative current account balance is a direct result of overvaluation of the kwacha. Devaluation has been undertaken to stabilise the economy,” said Kaferapanjira.
For the recent 49 percent devaluation to be successful, he argued that it must work towards reducing the purchasing power which he said will in turn encourage the expansion of exports.
The MCCCI chief said expansion of exports would be achieved through a depressed domestic demand on account of a reduction of purchasing power which, he said, would force companies to look for export markets to sell excess production.
“But the local industry must be stimulated to produce more and thus the removal of tax disincentives and the work on restoring credibility to power supply,” he said.
Kaferapanjira also said the proposed civil servants salary adjustment of 21 percent in the budget would increase real purchasing power, recognising that most civil servants’ incomes may have been pushed below subsistence level by the devaluation.
He noted that tax measures introduced in 2012/13 are intended to stimulate and promote private sector growth, but reiterated that what is key in the tax reforms is the consistency so that businesses are certain of the tax environment.
In the 2012/13 national budget, government has removed VAT from items such as machinery, financial services, newspapers and internet services for access to affordable information and bread.
