Nico outlines threats to economy
Investment management and advisory firm, Nico Asset Managers, says high levels of government debt, coupled with unreliable power supply, continue to pose major risks to the country’s growth prospects.
The development comes at a time Malawi is experiencing its worst power crisis in history, with power outages lasting over 12 hours in some areas.
The development has choked private sector operations, with many firms resorting to costly diesel propelled generators just to remain in business.
In its October 2017 economic brief released on Friday, Nico Asset Managers says the energy situation could limit investments into Malawi.
The World Bank has predicted the local economy to grow by 4.4 percent in 2017, and 4.5 percent in 2018 while the International Monetary Fund sees Malawi’s economy growing by 4.5 percent in 2017 before growing further by five percent in 2018.
Capital Hill has pegged growth at above 6.1 percent this year, buoyed by favourable weather patterns, which may spur agricultural production.
“Insufficient power supply may humper economic activity in the country. Power shortages may limit investment if alternative methods of power generation are not implemented,” part of the report reads.
President Peter Mutharika recently indicated that power outages would ease by December after the procurement of diesel-powered generators to add 78 megawatts to the national grid.
However, with controversies surrounding procurement of the generators, it remains to be seen whether the machines will be operational before December 31.
Nico Asset Managers further says the high domestic and foreign debt could mount pressure on the country’s future obligations.
As at the end of the second quarter of 2017, Malawi’s domestic debt stood at K846.10 billion while foreign debt was recorded at K1.35 trillion.
“High debt levels create a future obligation for government to repay its domestic and foreign debt plus interest.
“Long-term debt results in higher levels of interest payment, which increases government expenditure and budget deficit. The depreciating currency will also result in higher interest payment for foreign loans,” Nico says.
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