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Covid-19, AIP imports worsen Malawi trade balance

March 10, 2021 / Wahard Betha
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The Ministry of Finance has described an increase in imports of items for the novel coronavirus (Covid-19) management as well as strategic commodities under the Affordable Inputs Program (AIP) as the main catalysts for worsening of the country’s trade balance.

In the 2020-21 Mid-Year Budget Review in Parliament last Friday, Minister of Finance Felix Mlusu said the country has registered heavy imports of the products following the rise of covid-19 cases and increase in demand for AIP products as Malawi clocked the agricultural growing season, a situation which has widened trade deficit.

“Madam Speaker, the country’s trade balance continues to worsen.”

“As at end December 2020, trade deficit widened to US$566.7 million from US$352.8 million recorded during the same period in 2019,” Mlusu said.

Mlusu also said at the end December 2020, Gross Official Reserves stood at US$574.3 million, representing 2.8 months of imports, down from US$846.6 million, 4.1 months of imports recorded in December 2019.

He said the situation has forced the Malawi Kwacha exchange rate against major trading currencies during the year 2020 to face some depreciation pressure.

Mlusu said from June 2020 to December 2020, the Malawi Kwacha depreciated by about 5% against the United States dollar.

He also said the Malawi economy in the year 2020 grew marginally by 0.9%, a downward revision from the estimated growth rate of 1.9% detailed during the 2020/21 budget formulation.

Mlusu said: “This economy, Madam Speaker, continues to suffer from the adverse effects of the coronavirus pandemic which compelled Government to impose containment measures, including partial lockdown and restrictions on mobility.”

“Internationally, Malawi’s economic activities have been hampered by border closures in neighboring countries as well as containment measures in major trading partners such as South Africa, Europe and China.”

The Minister also cited that the Finance Ministry has forecasted preliminary Gross Domestic Product (GDP) growth rate for the year 2021 at 3.5%.

Mlusu said the estimate follows normal to above normal rains that the country has received so far, although localized dry spells are being experienced in some districts mostly in the southern and eastern regions of Malawi.

According to Mlusu, growth in 2021 will also be significantly bolstered by the expected increase in agriculture output due to the impact of AIP.

He said: “Madam Speaker, enhanced growth prospects in 2021 are also buttressed by the on-going Government infrastructure development projects in the road, energy and agriculture sectors, most of which are growth enablers.”

“Furthermore, Madam Speaker, just as in many other countries, the Covid-19 vaccine is also expected to spur business and economic confidence.”

“It is however, important to remember that economic growth in 2021 and beyond is dependent on how fast the second wave of the pandemic dissipates.”

Meanwhile, State President Lazarus Chakwera has assured local Small and Medium Enterprises (SMEs) that his government will operationalize a new Public Procurement and Disposal of Assets  Act that will prioritize local SMEs in awarding of government contracts.

Chakwera said his administration is enforcing the new Act to confine the procurement of several goods and services to local SMEs.

He said: “This effectively brings to an end the procurement policy of past administrations that allowed the concentration of public contracts in the hands of large and foreign businesses for the supply of goods and services that can ably be supplied by local SMEs.”

“Additionally, these policies will inject the much-needed liquidity into the economy by putting money in the pockets of Malawians, enabling them to care for their families, which will in turn stimulate economic activity.”

“To prepare for potential liquidity shortages during the coming weeks of the state of national disaster, my administration has activated the Emergency Liquidity Assistance (ELA) framework to support banks in the event of worsening liquidity conditions.”

Chakwera also said under his leadership, the Government has extended the Reserve Bank’s moratorium arrangement on loan facilities for another six months to June 2021.

He said the moratorium has been designed to give businesses that are operating on funds borrowed from banks some breathing space to stop bleeding from the blows of the pandemic.

The mid-year budget review revised the earlier budget projection from MK2.19 trillion to MK2.33 trillion.

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