As world economies continue tightening their fiscal policies to contain effects of the Covid pandemic and the Russia—Ukrainian War, pressure is expected to persist in developing economies including Malawi.
In its recent Economic and Market Performance report, Bridgepath Capital Limited has warned the tighter financial conditions could trigger debt distress in emerging markets and developing economies.
The report says that the increase in borrowing costs is expected to put pressure on international reserves and cause depreciation against the dollar, causing balance sheet valuation losses among economies with dollar-denominated net liabilities.
It adds that increased exposure to other large bilateral creditors and the recent pandemic have brought new vulnerabilities, driving up public debt and eroding future potential growth in many countries.
“With government financial positions in many countries already stretched, this implies less room for fiscal policy support as 60 percent of low-income countries are in or at risk of government debt distress,” reads the report.
Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said in an interview that tight financial conditions restrict investments and consumption which is the centre of economic growth.
He said for a country like Malawi, there is, however, a need to understand and use trends of local economics rather than applying principles that work globally.
“In Malawi there is a need to understand that it is not necessarily the demand that drives inflation but the supply. Therefore we need to be working around that if we are to tame inflation,” he said.
In its third Monetary Policy Report, the Reserve Bank of Malawi (RBM) said inflation pressures are likely to linger and force it to make changes.
“The MPC will closely monitor inflation developments in the next few months, and stands ready to adjust the Policy rate upwards should inflationary pressures persist,” reads the report.
Inflation has been skyrocketing in Malawi and seen at 24.6 percent in June.
At its third Monetary Policy Committee meeting, the RBM, however, maintained policy rate.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.