Debt, power top threats to growth

Post was last updated: April 11, 2018

Investment management and advisory firm, Nico Asset Managers has outlined five risks facing the Malawi economy and has indicated that, if not addressed, these can affect real Gross Domestic Product (GDP) growth this year.

The list includes persistent power outages, high population and government debt levels.

This is coming at a time, when economic think tank, the Economic Intelligence Unit revised the growth figure for 2018 to 3.6 percent from an initial forecast of 4.1 percent.

The Reserve Bank of Malawi (RBM) also lowered its growth projection for 2018 to four percent from 5.1 percent in 2017.

In its Monthly Economic Brief for March, Nico Asset Managers says the growth strides may be compromised this year due to, among other things, high population growth, persistent weak export base and banking sector risks.

The firm also says insufficient power supply may again hamper economic activity this year, saying, power shortages may limit investment, if alternative methods of power generation are not implemented.

Of late, power outages have risen to unprecedented levels due to lowering of water levels in the Shire River, where the country taps power for hydroelectric generation.

This has led most companies to trim operations while others have had to shut down completely.

“Resorting to more expensive sources of power may result in increased production costs, thereby exerting more pressure on non-food inflation,” the report says.

Commenting on the rising debt, Nico says the high debt levels have created a future obligation for government to repay its domestic and foreign debts plus interest.

Recent figures show that Malawi’s debt increased by 5.1 percent in the fourth quarter of 2017 to hit K2.47 trillion.

“Long term debts result in higher levels of interest payments, which increases government expenditure and budget deficit,” the report reads.

The firm also said the country is characterised by weak export base, a development likely to affect stability of the kwacha against major trading currencies.

Nico then suggests that high lending rates may deter private sector growth and capital investment, also leading to high default rates on loan facilities and lower private sector activity.

And on population growth, Nico warns that any improved economic growth may still not translate into real sector growth due to the high population growth.

The International Monetary Fund has forecast 2018 growth at 4.5 percent while the World Bank has projected the economy to grow by five percent.

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