Malawi’s terms of trade are expected to deteriorate on the back of rising oil prices and shortage of gas on the international market, a recent monthly economic report published by Nico Asset Managers has predicted.
Terms of trade is the ratio between a country’s export prices and its import prices.
The November monthly economic report highlights that the current-account deficit has historically been large, averaging just under 20 percent of gross domestic product (GDP) in the past decade, and will remain large between 2021 and 2025.
This mainly reflects a wide merchandise trade deficit, owing to Malawi’s dependence on fuel and capital goods imports.
“Increased export volumes of agricultural products, mainly soybeans, tobacco and tea, and higher global tea prices, will keep export earnings on an upward trajectory. A more diversified export basket will also shield earnings from global price volatility,” the report suggests.
The report further notes that the government has introduced policies, including the mining sector reforms, which were touted as a route towards improving exports to support the country’s terms of trade.
Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said the solution lies in making fruitful investments and import substitution, among others.
“There are some things that we do not need to import; we just need a month or three to implement good investments and do import substitution through value addition. Apart from that, we should ration our foreign exchange to import only that which needs to be imported,” Tchereni said.
Deteriorating terms of trade may result in increased pressure on the Kwacha and further increase in the cost of importing products.
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.