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Financial risks mixed in 2020

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Felix Mlusu

The local economy saw mixed financial vulnerabilities and risks in the second half of 2020, which resulted in some sectors being resilient to economics shocks emanating from the Covid pandemic while others were heavily shaken.

This is contained in the biannual financial stability report of the Reserve Bank of Malawi (RBM).

The report says while risks heightened globally, locally, the situation was mixed as inflationary pressure continued to subside and headline inflation and interest rates declined, thus supporting domestic financial stability.

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On the other hand, further slowdown in the country’s economic growth and depreciation of the Kwacha weighed negatively on the country’s financial stability.

It says the banking sector showed resilience while general insurance sector, microfinance and Saccos remained sound and fair, mixed with some declines.

“The Malawi economy is projected to rebound in 2021, on the assumption of better agriculture production as the business community enhances adaptation skills and experience in containing the pandemic. However, the projections are subject to high uncertainty and more likely to be revised downward,” the report reads.

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Commenting on the resilience of the banking sector, Research Manager at Alliance Capital Bond Mtembekeza said banks in the country are generally resilient due to stringent standards set by the RBM.

He added that most banks in 2020 relied mostly on digital and remote banking channels that in some way enhanced efficiency and reduced costs on the other hand.

Chancellor College-based economist Laston Manja predicts that the financial system will remain resilient in the first half of 2021 at the back of a good harvest and an ease in Covid cases.

“A projected good harvest, which will most likely yield gains in the value of the Kwacha so as to see a continued subsidizing of inflationary pressures should support domestic financial stability.

“Key on the international front will be gains from the Covid vaccine currently at an advanced stage which will spur a rebound in the global economy,” Manja said.

Finance Minister Felix Mlusu predicted in his Mid-year Budget Statement that the economy would grow by about 3.5 percent this year.

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