Import growth is expected to remain high in the coming financial year driven by rising domestic demand and an increase in global oil prices, a Monthly Economic Report for May prepared by Nico Asset Managers has shown.
Nico predicts that this will happen despite the government’s efforts to implement a tight fiscal policy and says it is critical for the country to diversify its export base in order to be competitive and reduce risks in economic growth due to overdependence on tobacco.
The 2017 Malawi Government Economic Report also shows that the country’s current account deficit, a measurement of a country’s trade, in which the value of goods and services it imports exceeds the value of goods and services it exports, will worsen in 2017.
The deficit is projected to increase by 12.1 percent in 2017 to $848.5 million from $756.8 million recorded last year.
“The trade balance will remain in deficit, owing to high cost of transporting goods into and out of a landlocked country,” the report reads in part.
Statistics also show that the current account deficit is, however, to contract gradually from 18.8 percent of Gross Domestic Product in 2016 to 15.9 percent of by 2021 as a rebound in export earnings may improve the trade balance.
According to the Nico report, tobacco exports may recover this year on the back of the normalisation of harvesting patterns, but growth potential is limited owing to weak global demand as a result of increased health campaigns.
It says medium term export growth will still be driven by the gradual expansion of soya beans, tea, sugar and other cash crops, although growth will continue to be held back by infrastructure challenges, a lack of finance for farmers and poor agricultural technologies.
“The promotion of agricultural resilience by connecting farmers to markets and strengthening farmer capacity in risk management practices may help to improve exports,” Nico said.
Nico further says higher export values will increase the inflow of forex which would help to reduce the trade balance, if inflows are sustainable.
Tobacco has remained Malawi’s main export commodity, although its growth potential has been limited amid weak global prices and reduced demand following anti-tobacco smoking lobbies.