Malawi economy still looks gloomy
Malawi's future still looks gloomy despite efforts by the government to turnaround the situation, financial market experts have said.
Among other things, the Malawi kwacha is likely to continue falling in the coming months as the country faces yet another year of low tobacco export earnings which are likely to generate well below US$200 million by the end of the selling season this weekend.
With only a few days left to the closure of the tobacco marketing season, the 'green gold' has managed to rake in about US$60 million, a development that has caused anxiety on the financial market about the forex outlook for the country.
Chancellor College's economics Professor Ben Kaluwa has since blamed Malawi's current poor forex outlook to the country's reliance on tobacco.
"This is a major problem," said Kalua, "But donors could help us manage the situation."
Finance Minister Ken Lipenga said government would leave no stone unturned in making sure that the economy recovers quickly and that forex should continue to be available in the country.
He said whatever the case, the situation cannot be as bad as that of last year.
"We are working very hard to prevent last year's situation and government is there so that Malawians should not go through what happened in the past," said Lipenga.
He said although tobacco volumes had fallen, stakeholders in the tobacco industry were still working out the figures to see how much has been compensated from the good tobacco prices this year.
However, two financial institutions – CDH Investment Bank and Nico Asset Managers – in their recent analyses of the country, have cast a gloomy picture on the country's economic outlook.
CDH says in its report that the country's foreign exchange reserves have not improved significantly even at a time the country was selling tobacco and receiving some inflows from donors.
According to CDH, reserves in commercial banks for the month of June 2012 had unimpressively improved to US$319 million or 2.46 months of import cover, up from US$302 million or 2.34 months of import cover for the previous month.
The cover has since worsened to about US$220 million or less than one month of import cover by July 4, according to latest financial market data.
"This figure is very low when compared to the required minimum import cover of 3 months," reads the CDH report.
In its monthly report for June, Nico Asset Managers also said despite efforts in the budget to resuscitate the economy and improve the investment environment, the economy is expected to remain subdued during 2012 partly because of low foreign exchange reserves in the country.
"The government itself has acknowledged the economic upheaval that the devaluation of the currency and other policy measure are likely to lead to. The economy is expected to experience lagged effects of the slowdown that it has been experiencing.
"High inflation, increased cost of borrowing and a weakening currency are major impediments to the recovery. Possibly, the economy could pick up after a year or two," said the report.