Malawi economy slowly healing: Kwacha stabalise, growth rate projected at 6.1% in 2014

Malawi economy is  slowly healing with the local currency, the Malawi kwacha, showing signs of stabilisation on account of weak demand for foreign exchange, National Bank of Malawi (NBM) has said.

And the International Monetary Fund (IMF) has forecasted Malawi’s real Gross Domestic Product (GDP) growth rate next year at 6.1 percent which  represents a 4.1 percentage points higher than the growth rate attained in 2012.

In its April economic newsletter, National Bank of Malawi says: “The Malawi kwacha to the US dollar exchange rate is showing signs of stabilisation, at least for the time being, at around the K420 mark.”

“This [signs of stabilisation] is mainly due to weak demand for foreign exchange. Having almost cleared external arrears which had accumulated in the previous three years, the weak demand is also as a direct consequence of an effective monetary policy implementation strategy by the Reserve Bank notwithstanding the weak fiscal performance,” reads the bank’s report as quoted by The Nation.

Malawi highest denomination notes are K1,000
Malawi highest denomination notes are K1,000

The bank reported that the local foreign exchange interbank market is now exhibiting signs of some activity, bolstered by tobacco sales “albeit with lack of off-takers.”

According to the paper, the bank said due to the tight liquidity conditions within the economy and that of commercial banks in particular, tobacco dollars and other foreign currency proceeds are sometimes difficult to offload for kwacha into the market, thereby resulting into some semblance of exchange rate stabilisation.

“If these conditions persist, it could lead to some sort of appreciation of the Malawi kwacha provided government spending appetite adjusts accordingly,” anticipates the bank.

Economists who spoke to Nyasa Times said the economic focus was “good news just when we needed it”.  But the economists warned: “We shouldn’t get too excited, but it does provide relief from all the doom and gloom.”

RBM Governor Charles Chuka is on record expressing the  hope that that the kwacha currency is bound to stabilise soon as tobacco dollars are trickling in.

And the IMF, in its World Economic Outlook, released last week on the sidelines of the joint Spring Meetings by IMF and World in Washington DC, has since maintained Malawi’s growth forecast this year at 5.5 percent which is also what the fund’s boss Christine Lagarde meted out when she visited the country in January this year.

Investment management firm, Nico Asset Managers said in its economic report for April, 2013 that risks to economic growth in 2013 and beyond are the high inflation rates and continuing depreciation of the currency as well as high interest rates.

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