Nico Asset Managers says economic threats remain

Post was last updated: February 8, 2017

Key economic threats remain prevalent for the country, despite positive growth forecast to be led by agriculture as production revamps recovery from a contraction caused by drought in 2016, advisory firm Nico Asset Managers says.

Gross Domestic Product (GDP) expansion activity in the country is to pick up to 3.9 percent in 2017 from 2.5 percent in 2016.

However, the firm reiterates in its January 2017 Monthly Economic Brief that the country remains susceptible to economic threats and shocks which would distract development endeavors.

The risks include; high debt levels, insufficient power supply, persistent weak export base and banking sector risks and are said to have an impact on 2017 economic growth strides.

In the report issued on Tuesday, Nico says government will remain with a “future obligation to pay its domestic and foreign debt plus interests.”

The firm says domestic debt stock increased to K 757.2 billion in the third quarter of 2016 from K 746 billion the previous quarter while foreign debt stood at $ 1, 709.9 million during the third quarter of 2016.

“Long term debt results in higher level of interest payment whi ch increase government expenditure and increase the budget deficit,” indicates Nico in the report.

The firm also says the depreciating currency will also result in higher interest payments for foreign loans.

High lending rates may also deter private sector growth and capital investments according to the report.

“High lending rates may also lead to high default rates on facilities and lower private sector activity,” indicates the report.

Nico also says insufficient power supply may lower productivity in the country.

The report says power shortages will lower investment if alternative power generation is not implemented, dampening economic growth.

The firm further says the country is characterized by weak export base which may affect the stability of the Kwacha against the major trading currencies.

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