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Current account deficit widening

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Ben Kalua

A recent report by the Reserve Bank of Malawi (RBM) shows that current account deficit is expected to worsen slightly to $1.64 billion in 2020. This represent s a 2. 6 percent increase from $1.6 billion deficit recorded in 2019.

According to the 2020 RBM Economic Report, the deficit is expected to worsen further to $1.7 billion in 2021, 2.7 percent higher than the 2020 projection.

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

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The RBM report, however, shows that the current account balance, as percentage of Gross Domestic Product (GDP), is expected to be slowly improving by at least a percentage point during the period under review, from 19.5 percent in 2019 to 18.3 percent in 2020 and 16.8 percent in 2021.

“This trend reflects the moderate increase in the deficits in relation to the growth in GDP,” reads the RBM report.

RBM says the government’s effort towards diversifying exports is set to stabilise the country’s trade balance which will translate into the improved current account situation.

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It says the launch of Micro, Small and Medium Enterprises (MSMEs) policy in early 2019 is one such government effort that will improve the current account situation by enhancing the international competitiveness of MSMEs in the country.

Econoics professor at Chancellor College, Ben Kalua, said the country needs to rejuvenate its economic base if it is to reverse the trend. “The problem is structure of the economy. We are heavily relying on imports and doing less on production.

“We do not generate enough money to meet the demand for imports. Therefore, we need to rejuvenate the economy by among other things revamping the industry and commercializing agriculture,” Kalua said.

Malawi remains a predominantly consuming and importing nation, amid several attempts by the government and other stakeholders to put measure to ensure broadening of the country’s exports base.

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