Cautious optimism

As economic outlook remains mixed

Chancellor Kaferapanjira

Malawi’s economic outlook for 2023 and beyond remains mixed, albeit the country recording some gains in key macroeconomic fundamentals lately.

In the run-up to January 2023, all key indicators, including headline inflation and Malawi Kwacha’s footing against peer currencies, were seen in red, with an elevated chance of economic shocks’ spillover into the New Year.

But in January, daily rates show that the Kwacha was stable, selling at K1,036 to a dollar while headline inflation slightly eased to 25.4 percent by December 2022.


However, monetary policy authorities feel while the economic outlook has materially improved, after a sharper-than expected slowdown last year, maintaining a tight monetary policy stance would help other prevailing pressure points.

In a statement after its first 2023 Monetary Policy Committee meeting last week, the Reserve Bank of Malawi says the outlook remains mixed as an elevated inflation risk is still imminent.

“Despite this optimism, the committee noted that inflation was likely to remain in double digits in 2023, making it unconducive to support economic growth.


“At the same time, the MPC opined that loosening monetary policy in a double-digit inflationary environment could reverse the expected downward inflation path,” reads part of the statement.

The MPC, then, maintained the policy rate at 18.0 percent, lombard rate at 20 basis points above the policy rate and the Liquidity Reserve Requirement (LRR) ratio on domestic and foreign currency denominated deposits at 3.75 percent.

RBM has since revised downwards its annual headline inflation target to 18.2 percent from 21.5 percent on the back of expected good agricultural output this season.

The International Monetary Fund projects Malawi’s headline inflation to average 20.8 percent this year and 22.7 percent in 2023.

Comparatively, the Treasury projects annual average inflation to rise to around 21.5 percent from 9.3 percent registered in 2021.

In 2023, according to government estimates, headline inflation is projected to stabilise at an average of 21.8 percent before it starts to decline thereafter.

Industry captains feel the country’s economy is not out of the murky terrain yet.

In an interview on Monday, Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer Chancellor Kaferapanjira said RBM’s monetary policy stance is ideal towards stabilising the economy.

“We would have loved it if the policy rate went down because it would have implications on the rate of interest, which is for sure critical for financing businesses.

“But we are also aware that the Reserve Bank has taken into consideration various other factors including the need to monitor the inflation, among other factors,” Kaferapanjira said.

Recently, the African Development Bank (AfDB) said it expects the local economy to grow by at least three percent in 2023 from a 2.8 percent gross domestic product (GDP) growth estimate last year.

The projection is 0.4 percentage points higher than the 2.6 percent GDP growth estimate made by Finance Minister Sosten Gwengwe when presenting the 2022-23 mid-year budget statement in November 2022.

It is also above the 2.2 percent growth estimate by the World Bank as published in the Britton Wood Institution’s most recent Malawi Economic Monitor.

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