Firm outlines key economic threats
Investment management and advisory firm, Nico Asset Managers, has outlined key risks facing the Malawi economy, reiterating that they would distrust development endeavours this year.
The firm, in its December, 2016 Monthly Economic Brief, has identified high debt levels, insufficient power supply, banking sector risks, adverse weather and persistent weak export as likely risks facing the economy in 2017.
These, according to the firm, could have an adverse impact on the economic growth strides for the country.
In 2016, the Reserve Bank of Malawi (RBM) projected the economy to grow by 5.1 percent, but later revised the estimate to 2.9 percent.
The RBM expects the economy to rebound in 2017, forecasting domestic economic activity to grow by 5.6 percent.
However, Nico Asset Managers said increased expenditure in the government budget will lead to an increase in government borrowing, hence widening the fiscal deficit.
According to the firm, total domestic debt rose by 26 percent to $669 million in the first quarter of 2016, while foreign debt rose by $1.47 billion during the fourth quarter.
“High debt levels create future obligation for government to repay the debt plus interest. Long term debt results in higher levels of interest payments which increases government expenditure and increase the budget deficit,” indicates the firm in the report.
Government is still spending beyond its means with expenditure for the third quarter of 2016 rising by K43.8 billion to K262.1 billion according to a recent RBM report.
The total expenditure is against total revenues of K205.5 billion, creating an overall fiscal deficit of 1.5 percent of Gross Domestic Product (GDP) for 2016.
On the banking sector risk, Nico Asset Managers says high lending rates may lead to slow down in private sector growth and a decrease in capital investments.
It says that high lending rates may deter private sector growth and capital investment while leading to high default rate on loan facilities.
The firm also worries that insufficient power supply may lower productivity in the country.
In a recent interview, Professor of Economics at Chancellor College, Ben Kalua, warned authorities to stop “having things undone” saying government should start addressing economic bottlenecks with seriousness and focus to create meaningful economic growth.
“If we talk of value addition in Malawi, we need to have energy, water and transport infrastructure. Let’s not get things undone. Let’s get focused on things where we already have potential,” suggested Kalua.
