Reserve Bank of Malawi sees trade terms improving
The Reserve Bank of Malawi (RBM) has projected that Malawi’s terms of trade will improve in 2023 on the back of improved prices of exports and reduced prices of imports.
The central bank said this in its post Monetary Policy Committee meeting report released Monday.
Terms of trade refer to the ratio at which a country’s unit of exports can be used on a unit of imports.
In the report, RBM says price declines in fuel and fertilisers—Malawi’s major imports—will continue in 2023, supported by the combined effects of easing supply bottlenecks and weak demand.
“Trade reports further indicate that prices of tea – one of the country’s exports – are expected to increase in 2023 on account of improved demand. Based on the foregoing, Malawi is expected to experience favourable terms of trade in 2023,” the report reads.
The report indicates that on the global market, urea fertilizer prices declined to an average of $671.88 per metric tonne in the fourth quarter of 2022, from $761.79 per metric tonne in the third quarter and compared to $714.86 per metric tonne for 2021 last quarter.
Meanwhile, tea prices sold through the Mombasa market increased to $2.44 per kilogramme in the last quarter of 2022 from $2.36 per kilogramme in the preceding quarter even though sugar prices in the EU market remained constant at $0.33 per kilogramme in the last quarter of last year, but were lower than $0.37 for the last quarter of 2021.
Economist from the University of Malawi Lucius Cassim said it is encouraging that the terms of trade will improve but added that it is temporary because price movements on the international markets are volatile.
He believes that a permanent solution is for the country to improve its export base by diversifying from traditional exports to new and profitable products.
“We need to diversify the economy and start exporting finished goods rather than raw materials and, that way, we will be able to offset the worsening terms of trade,” Cassim said.
During the last quarter of last year, merchandise trade yielded a deficit estimated at $161.8 million compared to a surplus of $18.7 million recorded during the third quarter and a deficit of $536.5 million during the last quarter of 2021.
The development followed an increase of 67.3 percent in imports to $487.6 million, which outweighed the impact of a 5.0 percent growth in exports to $325.8 million during the same period.
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