Investment management and advisory firm, Nico Asset Managers, has said it expects the local trading unit, the kwacha, to remain stable in 2018, buoyed by continued inflow of foreign currency and subdued inflation.
This should be good news for the business community as it makes business planning simple.
The kwacha remained relatively stable in 2017, depreciating by only 0.47 percent to K732.03 to the dollar in December 2017 compared K729.60 to the dollar in January 2017.
The extremely short tobacco selling season and relatively lower tobacco revenues in 2017 did not disrupt the kwacha stability, thereby defying the seasonal trends the local currency has experienced over the years.
In addition, subdued demand on the foreign exchange market and continued inflow of foreign exchange reserves in 2017 lessened the pressure on the kwacha.
In its Annual Economic Report for 2017 released on Friday, Nico said it expects the stability of the local unit to continue in 2018.
Nico said the overall trend towards stability in the value of the kwacha reflects improvements Malawi has attained in major macroeconomic variables.
“In the medium to long-term, the kwacha is expected to depreciate if the current downward trend in tobacco revenues is sustained as this would entail low forex reserves generated from tobacco sales. The kwacha is also expected to depreciate in the medium to long term on account of significant current account deficits and weak foreign direct investment inflows.
“In the medium-term, Malawi’s currency will weaken gradually but steadily from an estimated value of K716.3 to the $1 in 2016 to K949 in 2021,” Nico said.
The firm further said it expects that the country’s exports may improve in 2018 on the back of the normalisation of harvesting patterns, but that growth potential is limited owing to weak global demand and low commodity prices.
It adds that medium-term export growth will be driven by the gradual expansion of soya beans, tea, sugar and other cash crops, although growth will continue to be held back by infrastructure challenges, lack of finance for farmers and low technology agricultural techniques.
The government is promoting the production of legumes and it is estimated that the country can earn $1 billion from legumes exports.
Nico Asset Managers said the promotion of agricultural resilience by connecting farmers to markets and strengthening farmer capacity in risk management practices may also help improve exports.
Today’s top business story: Top Commercial Banks In Malawi