The piece “Forecasts of tough times ahead in Malawi” featured below was initially published in Malawi’s Mining & Trade Review Issue Number 29 2015 that is circulating this September 2015.
The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.
The publication announced its rebranding this month, moving from the Mining Review to the Mining & Trade Review
The decision to rebrand has come about in response to some of our readers from other economic sectors in addition to mining who want to be incorporated as stakeholders.
Standard Bank forecasts tough economic times for Malawi
By Staff Reporter
Standard Bank has forecast challenging times for Malawi’s economy in the last half of the year 2015 saying inflationary pressures emanating from rising cost of food will persist and may restrict an expansionary monetary policy.
In its half year financial review report ending June 2015, the Bank says the Government’s continued overdependence on domestic borrowing to finance the fiscal deficit will continue to pose a challenge in achieving a low interest rate environment.
On economic highlights in the first half of the year, the Bank observes that the macroeconomic environment continued to be characterised by high lending rates, which constrained credit expansion.
Treasury bill yields generally abated partly due to high market liquidity that characterised the most part of the period. Headline inflation hit a two year low of 18.2% in March supported by lower food prices and a decline in global oil prices,
says the Bank.
It observes that the kwacha remained relatively stable in the first half of the year with minimal volatility as the anticipated appreciation in the first half of the tobacco season was subdued due to soaring demand for foreign exchange.
Nonetheless, despite such economic hiccups, Standard Bank says it leveraged on its diversified product mix to deliver positive half year results.
The Bank’s total assets grew by 7% year on year, mainly emanating from a 23% growth in loans and advances to customers, which was as a result of the Group’s initiatives of selectively growing its lending portfolio.
In a related development, a number of companies in Malawi have portrayed a gloomy picture for Malawi’s economy.
In its half year report for the period ended June 2015, NEDBANK points out that Malawi’s economic environment has been challenging to the business sector in the first half of the year 2015 as interest rates have been high driven by the high bank and Lombard rates, which remained at 25% and 27% respectively during this period.
NEDBANK notes that on the back of reduced agricultural output due to heavy flooding in the first quarter of 2015, headline inflation has been on the rise closing at 21.3% in June up from 18.2% in March.
The Bank observes that despite the tobacco season remaining open and the official reserves remaining high throughout the period, where average import cover has consistently been above three months, the Malawi Kwacha depreciated against major currencies trading at K501 to the US Dollar as at July 2015.
The recent RBM directive on reduction of LRR to 7.5% from 15.5% is, however, a positive intervention that is likely to translate into reduced cost of borrowing to customers,
It projects that the second half of the year is expected to remain economically challenging for Malawi with inflation likely to continue to rise driven by the envisaged food shortage, and the projected budget deficit coming from reduced direct donor support to the budget is likely to exert pressure on interest rates.
On a more positive note though, however, growth projections remain high at 5.4%,
But it is not only the financial sector that has painted a bleak future for Malawi’s economy. Telecommunication firms also expect the challenging business environment to continue in the short to medium term with mobile phone services provider TNM foreseeing that Malawi’s economy will continue to be characterised by high levels of inflation, high interest rates and a volatile exchange rate in the second half of 2015.
The anticipated impact thereof on TNM is a moderation in the levels of growth achievable by the company for the full financial year,
says TNM in its half year financial review.