High commodity prices worsen trade balance

High commodity prices worsen trade balance

The Reserve Bank of Malawi (RBM) says the war between Russia and Ukraine continues to hit the domestic economy as high global prices of commodities have contributed to high import costs.

RBM figures contained in the third Monetary Policy Statement issued last week show that the high global prices of Malawi’s strategic commodities such as fertiliser and oils contributed to a large increase in imports from $191 million (about K198 billion) to $762.2 million in the second quarter of this year.

High fertiliser import costs contributed to a large trade balance

The central bank said this ultimately pushed up the trade balance to about $593.5 million (about K615 billion) during the review period, which was worse than minus $456.6 million (about K473 billion) in the first quarter of this year. During the review period, exports decreased by $14.3 million (about K15 billion) to $168.7 million (about K175 billion). 

Reads the statement: “The high imports in the country were against a backdrop of $14.3 million which is about a 7.8 percent decrease in export proceeds to $168.7 million in the period.

“Consequently, the merchandise trade balance was worse in the second quarter compared to the first quarter of this year.”

RBM said imports, which recorded increases during the quarter under review apart from petroleum products  and  fertilisers  which rose by 104.5 percent to $158.3 million and by 46.6 percent to $39.3 million, respectively, were pharmaceuticals and vehicles,  which increased by 61.2 percent to $57.8 million and by 20.5 percent to $42.5 million, respectively.

Meanwhile, such persistent merchandise trade deficits have resulted in low domestic supply of foreign exchange against the demand.

Speaking in an interview yesterday, Malawi University of Business and Applied Sciences  associate professor of economics Betchani Tchereni said  the development has negative effects as a negative trade balance, especially with lower exports, means that another devaluation is almost inevitable.

He said in terms of the agriculture season, the Affordable Inputs Programme will also be affected as this will mean that the budget have to be revised.

He said: “As for the short-term, I must say the International Monetary Fund’s Extended Credit Facility is our lifeline. Other than that, it is hard for us to survive as a nation. We may have to look to other development partners to either forgive our debt or restructure the debt or give us some debt or assistance for us to stabilise the balance of payments.

“We also may have to consider the cannabis market at a much larger scale, that one is actually a game changer if we do it carefully.”

The war in Ukraine is provoking a rapidly expanding global crisis, with the surging cost of food, fuel and fertiliser, which  is increasing hunger, food insecurity and hardship for millions of people around the world.

According to the central bank data, Brent crude oil price increased to an average of $112.74 per barrel in the review period from $98.96 per barrel in the preceding quarter.

In a similar period in 2021, the commodity traded at $68.6 per barrel.

On the other hand, urea prices were in the review period substantially higher than $351 per metric tonne.

Prices of di-ammonium phosphate fertiliser also surged to an average of $860.08 per metric tonne in the review period from $794.88 per metric tonne.

The post High commodity prices worsen trade balance appeared first on The Nation Online.

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