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Trade balance seen widening

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Merchandise trade deficit—the difference between exports and imports—was seen further widening in February 2022, recent figures from the Reserve Bank of Malawi show.

An economic review for the month, issued on Friday, indicates that merchandise trade balance worsened to a deficit of $140.4 million (about K115.9 billion) in February 2022, from a deficit of $111.6 million (about K92.3 billion) in January.

This is compared to a trade deficit of $139.1 million (about K109.1 billion) recorded during the same period last year.

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“The outturn represented the joint effect of a 5.4 percent decrease in exports to $72.9 million (K59.9 billion) and a 13.0 percent increase in imports to $213.2 million (K175.8 billion). The fall in exports was mainly a result of a reduction in exports of sugar and pulses. Meanwhile, the rise in imports was largely explained by increases in imports of fuel, vehicles and pharmaceuticals,” the report reads.

Economics Association of Malawi Executive Director Frank Chikuta said the trade balance has been in deficit for a long time and that the major reasons include structural bottlenecks in the economy, which have resulted in the country not producing enough competitive products for the export market.

He said the recent widening of the deficit is of concern since it signals that the problem is worsening.

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“To reduce the deficit, the country needs to address the structural bottlenecks so that the economy can start producing enough for export and import substitution. We should also appreciate that our imports are mostly essential, including fuel and pharmaceuticals, hence a bit difficult to reduce,” Chikuta said.

In an interview, economist Thomson Kumwenda said the easiest way to reduce the trade balance is by encouraging production of commodities the country imports.

He said emerging industries require intense support if the aspiration of import substitution is to be attained.

Malawi’s trade imbalance increased from about -$1.3 billion in 2010 to an estimated -$2.2 billion in 2020, representing a worsening increase of about 72 percent.

Recently, the Malawi Investment and Trade Centre said it was committed to reversing Malawi’s negative trade balance by, among other things, boosting exports and promoting import substitution.

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