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Current account deficit seen narrowing in 2019

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By Taonga Sabola:

Investment management and advisory firm, Nico Asset Managers, says it expects Malawi’s current account deficit to narrow by 1 percentage point of the Gross Domestic Product (GDP) in 2019 as imports growth slows.

The current account deficit is a measurement of a country’s trade where the value of goods and services it imports exceeds the value of the goods and services it exports.

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The current account includes net income, such as interest and dividends, and transfers—such as foreign aid although these components make up only a small percentage of the total —current account.

The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments.

In i ts January 2019 economic report released last week, Nico Asset Managers says it expects Malawi’s current account deficit to narrow from an estimated 18.8 percent of GDP in 2018 to 17.8 percent of GDP in 2019 as import growth slows on the back of an improved harvest.

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“The shortfall will continue to edge down, to 14.6 percent of GDP in 2023, helped by a rise in agricultural exports.

“These forecasts are however contingent on normal rainfall patterns and any significant disruption would prompt a downward revision to agricultural exports and an upward revision to food imports, thereby causing the deficit to widen,” Nico Asset Managers says.

It says export performance will be supported by higher production of cash crops, including tea, soybeans and sugar, although comparatively subdued global prices — particularly in the first half of the forecast period—will curb the pace of revenue growth.

Nico, however, says tobacco production is expected to decline as the Tobacco Control Commission continues to retain the quota introduced in 2017 with the aim of controlling supply and prices.

The firm says, as a result, the tobacco receipts are expected to remain flat.

“The country’s foreign income might decrease based on whether the government continues to borrow more locally or not. The recent decrease in interest rates will also decrease the cost of debt-servicing in 2019 for the government.

“The secondary income surplus, which covers private transfers and some official aid receipts, will widen in 2018- 20 but will narrow once the programme concludes in early 2021,” Nico says.

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