By Rebecca Chimjeka & Chimwemwe Mangazi:
The local economy remained fragile in the past 12 months; an analysis of indicators provided in the Malawi Financial Market update for the week ending March 15 2024 by Bridgepath Capital Limited can reveal.
For example, the update shows that the Kwacha has depreciated against the Dollar by 64.3 percent from February 2023 to March 15, 2024 trading at K1, 698.50 to a Dollar from K1, 033.68 a Dollar at the start of the period.
It is further noted that the depreciation is even steeper against other major currencies, such as the Pound at 73.5 percent from K1280.21 to K2220.56 and the Euro at 67 percent from K1128.21 to K1885.06.
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Against the Rand the Kwacha has dropped by 59.8 percent from K57.83 to K92.39.
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Furthermore, the update highlights that Malawi’s gross official reserves have been steadily declining since February 2023 from $280.66 million to $165.20 million in December 2023.
Total reserves have also been declining, falling from $659.20 million in February 2023 to $578.40 million in December 2023.
The decline in foreign exchange reserves suggests that Malawi is facing a balance of payments crisis. In essence the country is spending more foreign currency on imports than it is earning from exports.
It has also been noted that during the period Malawi’s inflation rate has been high reaching 35 percent in January 2024. Food inflation is even higher than overall inflation as it reached a high of 44.9 in December 2023. This suggests that Malawians are struggling to afford basic necessities.
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This is also reflected on Malawi’s monetary policy rate which has been increasing throughout the period from 18 percent in February 2023 to 26 percent in March 2024. However, interest rates have not kept pace with inflation. This means that real interest rates are negative. Such trends discourage saving and investment.
UK based Malawian economist Velli Nyirongo said the economic indicators are not painting a favourable picture of the economic landscape.
He said the recent decline in inflation is likely attributable to an influx of maize in the market, however, concerns linger regarding long-term sustainability as maize reserves dwindle and the lean season approaches.
“The government must address these challenges by tackling inefficiencies and implementing effective management strategies for its limited forex exchange reserves. Unlike previous situations, the forex reserves dwelling is not driven by used car imports or merely exports but lack of management in reserves.
“The key to resolving Malawi’s economic conundrum lies in stimulating economic growth through wealth creation. This can be achieved by implementing well-defined, targeted policies that promote exports and value addition. It’s also important for the government to speed up the development bank to help the private sector as the engine of growth,” Nyirongo said.
But Secretary to Treasury Betchani Tchereni said the situation is improving each passing day.
“The report is simply saying what has been obtaining on the economic front in the greater part of the 2023/24 financial year. After November 2023, the data has started to be different, a little more positive. For instance, headline inflation has started to ease downwards, foreign exchange reserves are higher than what the report is saying, food inflation is going down and there is direct budgetary support. So, while the report is true about the period under review, it is not true about the first quarter ending this March,” Tchereni said.
The government expects the economy to grow by 3.2 percent in 2024 and 4.8 percent in 2025 on the back of increased industry activity, contained inflation and improved supply of foreign exchange mainly from the donor community.
A recent World Bank report indicates that over the past 30 years, Malawi’s per capita gross domestic product (GDP) has increased by over 50 percent, a growth trajectory comparable to that of other countries in the region.
However, some peer countries have managed to triple their per capita GDP over this time, leading to substantial reductions in poverty rates. Additionally, given its significantly lower baseline, this has meant Malawi has not been able to catch up to its more prosperous neighbours.
