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Malawi trade balance improves by 68% Forex shortage affects imports

Betchani Tchereni,

Malawi’s trade balance improved by 68 percent in 2022 as compared to 2021, thanks to forex shortage which dampened imports and no thanks to improved exports, the Ministry of Finance and Economic Planning has said.

But Malawi University of Business and Applied Studies Associate Professor of Economics Betchani Tchereni Tuesday said Malawians need not to celebrate the so called improved balance, saying demand for imports remained high.

In the 2023 Malawi Government Annual Economic Report, Treasury says the country’s trade deficit improved from $2.07 billion in 2021 to $564.41 million in 2022.

“This was on the account of the scarcity of foreign exchange which restricted importation.

“The foreign exchange crisis in 2022 impeded the importation of essential commodities such as petroleum oil, pharmaceuticals, and farm inputs. The importation of pharmaceuticals, fertilizer and diesel fell in 2022 by 80, 37.11 and 30.04 percent respectively,” reads the economic report in part.

This, according to Treasury, prompted the government to introduce a mandatory 30 percent retention of foreign exchange from exporters’ earnings to refurbish the foreign exchange reserves to cater for essential imports.

“Overall imports decreased by 49 percent in 2022 compared to 2021 to the value of $3.08 billion.

“The value of exports in the economy decreased by 4.5 percent from $1.01 billion in 2021 to $956.9 million in 2022. This emanated from low productivity within the agricultural sector, a great contributor towards national exports,” Treasury says.

It adds that adverse weather conditions experienced in the 2021- 22 season affected the harvest of traditional export commodities such as tobacco and sugar.

According to the Treasury, volume exports for tobacco and sugar declined in 2022 by 21.06 percent and 73.43 percent, respectively.

“Nevertheless, other crops still performed relatively well such as pulses with an increased growth of 355.42 percent from 22,616 tonnes exported in 2021 and edible nuts grew by 17.41 percent in 2022 from 3,178 tonnes in 2021.

“For 2023, exports are projected to improve by 11.37 percent on account of the projected growth in exports of tobacco, sugar, and edible nuts,” the report says.

Asked for a comment Tuesday, Tchereni said Malawians should not really run to the bank with the improved trade balance.

“We should have improved through our efforts to sell more goods outside the country, thus increasing both exports and import substitution.

“This may not necessarily be regarded as an improvement because the demand for imports was still very high; people just didn’t buy the commodities because there just hasn’t been enough foreign exchange,” Tchereni said.

On capital account, the report says the capital account improved by 19.21 percent in 2022 reflecting growth in capital transfers to the general government sector which grew by 59.9 percent in 2022.

In macroeconomics and international finance, the capital account, also known as the capital and financial account, records the net flow of investment transactions into an economy.

The Treasury says, on the other hand, capital transfers to non-profit institutions have been declining in recent years with an average of -7.4 percent.

In 2023, Treasury says the account is expected to remain the same as in 2022 at $853.3 million.

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