AUTHOR: Wasili Mfungwe
MALAWI
1.0 Money Market Developments
1.1 Interbank Money Market
Signs of liquidity tightness exhibited at the close of last month persisted in the market throughout the month of October 2013. Inter-bank activity engorged within the month to touch a daily average of MK5.1 billion, 33% up on MK3.8 billion recorded in September 2013. The inter-bank rate increased a notable 448 basis points to close the month at 25% on account of the liquidity shortage. The heavy activity on the inter-bank market did not suffice as some institutions had to utilize the discount window to plug their books to average MK3.4 billion daily after two months without borrowing from the central bank. Excess reserves continued to drop to a daily average of MK2.5 billion, 57% down on last month. The central bank absorbed MK12.4 billion within the month in exchange with foreign currency hence contributing to the liquidity crunch.
1.2 Primary Treasury Bill Market
Investors under-subscribed the Treasury bill primary auctions within the month given the liquidity crunch. Bids to the tune of MK8.9 billion were applied for against an announcement of MK19 billion indicating 53% deficit. It is noteworthy that, monetary authorities cancelled out one of the auctions on account of scant bids. Monetary authorities almost accepted all the bids as they rejected a slight MK163 million (2% rejection rate). The central bank is maintaining a stance to borrow more domestically as the announced securities were almost four times the maturing short them debt in within the month.
Treasury bill yields firm across the board with the 91-day paper emerging the biggest gainer having added a stunning 1,037 basis points to touch 25.29%. The 182-day paper and the 364-day tenor increased 633 and 831 basis points to record 26.50% and 30.79% respectively. The 182-day paper accounted for the highest demand at 38%. The 364-day paper followed at 35% with the 91-day paper at 27%. With the persisting liquidity shortages the high yields will also continue and are likely to skyrocket once inflation pressure emerges.
1.3 OMO Repo
Monetary authorities conducted three OMO auctions which attracted a total of MK23.4 billion within the month with interest rate hovering in the range of 24% to 27%.
2.0 Monetary Policy Rate
3. 0 Foreign Exchange Market developments
The local unit continued to depreciate against all major trading currencies in the month under review. As at 31 October 2013, the Malawi Kwacha had recorded a deprecation of 7.1% against the US dollar to trade at MK397.86.The local unit wakened 6.5% and 7.8% to close at MK638 and 540 as regards the Pound Sterling and the Euro respectively. The local currency also eased 7.6% vis-à-vis the South African Rand to exchange at MK39.6. The Malawi Kwacha is anticipated to continue weakening given limited foreign currency inflows as the tobacco trading season has closed.
The stock of foreign exchange held as total reserves for the country declined slightly US$65 million or 9% to touch US$714 million. Official reserves held by the Central Bank at US$389 million accounted for 56% of banking system total foreign exchange reserves during the month under review after decreasing 13%. Foreign exchange reserves held by the private sector decreased 0.3% to US$ 306 million in the month under review from US$311 million previously. The import cover currently stands at 2.14 months of projected imports of goods and services which is below the highly recommend 3 months import cover. The import cover may be slightly cushioned by the “Managed Float” that the RBM is embarking on.
4.0 Inflationary Developments
The general price level for the country decreased further within the month of September 2013. Year-on-year headline inflation for the month eased 160 basis points to touch 21.7% from 23.3% in August 2013.
However, food inflation increased to 18.2% from 17.4% as a result of rising maize prices due to projected food shortages. Non-food inflation has dropped to 24.2% from 28.9% in August 2013.It’s a sixth month in row for headline inflation to drop on account of increase in the availability of food. Urban inflation has decreasing by 270 basis points to 31.0% from 33.7%, rural inflation decreased by 370 basis points to 16.9% from 20.6%
On a month-on-month basis, the all items consumer price index indicated an inflation rate of 6% as the key sector the “Food and Non-alcoholic” sector which contributes 50.2% of the whole index registered an inflation rate of 11%. It should be noted that the month-on-month price movements have indicated an increase across all sectors heralding an increase in the general price level in the coming months.
5.0 Stock Market Developments
The Malawi Stock Exchange showed bullish performance in the month under review with gains recorded in all market indicators. The Malawi All Share Index (MASI) increasing a massive 1,614.28 index points or 15.22% to settle at 12,219.25 points from 10,604.97 points in the previous month. The Year to date return currently settled at 103.13%. The stellar performance was on the back of the following market gainers; Illovo (12.05% increase), NBM (21.95% increase), NBS (23.08% increase), NICO (5.61% increase), PCL (42.28% increase), Standard Bank (25.42% increase), TNM (3.00% increase) and Old Mutual (29.91% increase). The market loser during the month of October 2013 was FMB (5.26% decrease). Total wealth of investors as indicated by market capitalization soared 29% to touch MK7.06 billion.
In trading terms, a total of 62.9 million shares exchanged hands at a total consideration of MK959.6 million (US$2,472,730.41) in 155 deals. In the previous month, September 2013 61,993,884 shares at a total consideration of MK362, 504,304.73(US$1,017,344.83) in 171 trades. This reflects a 1.52% increase in terms of share volume and 164.73% (143.06% in US Dollar terms) in share value. The average daily turnover for October 2013 was MK45, 697,260.68 (US$117,749.07) compared to MK17, 262,109.75 (US$48,444.99) for the previous month, reflecting an increase of 164.73% (143.06% in US Dollar terms).
6.0 Fiscal policy
Public spending growth may increase in 2013/14 but it depends on whether donor-government relations improve and that there are no delays in the grants. It is also set to increase due to the salary hikes which were implemented earlier in the year. Total expenditure for the 2013/14 Fiscal Year was set at MK638 billion comprising M K463.1 billion recurrent expenditure and MK175.0 billion development expenditure. Domestic revenue is forecast to grow as tax and customs administrations are strengthened and economic activity picks up. Public debt’s percentage of GDP is forecast to increase from 62% in 2012 to 68% in 2013, which is above the 3-year historical average of 40%. The IMF has urged the government to maintain a tight fiscal policy. The next IMF review which will be released in December 2013 may affect the release of the donor aid.
7.0 Economic Growth
Growth is expected to pick up in 2013 following a decline in growth in 2012. Although power supply continues to be intermittent and economic adjustments may damage productivity in the short term, economic growth is forecast to be 5% by the end of 2013. Risks to economic growth in 2013 are the high inflation rates and high interest rates which slow down economic growth as they reduce private sector activity as well as delays in donor funding. Another risk to economic growth is the alleged corruption in the public sector. Growth in 2013 will be hinged on the recovery in aid, the expansion of agricultural subsidies and improved investor sentiment as well as innovations in the mining sector. It is reported that the policies implemented under the Economic Recovery Plan are starting to bear fruit as there have been improvements in companies’ performance and confidence in the Malawi economy is returning.
8.0 Trade Balance
Exports are forecast to rise in 2013 due to the recovery of the tobacco market and various economic adjustments which have led to improved economic activity. Export growth will be robust in 2014-17, underpinned by favorable tobacco prices, strengthening uranium prices and a pickup in economic activity. Imports are expected to increase in 2013, reflecting a boost to food and fuel imports by measures to cover essential imports in the wake of the currency adjustment. In 2014 imports will rise owing to election-related spending and will continue to pick up on the back of increased economic activity and slightly higher global commodity prices.
9.0 International Relations
Malawi is expected to remain in good terms with major donors; the US, the UK and the EU. However they have concerns on the recent corruption and theft scandals in the public sector. They may withhold aid until a time they are satisfied on the level of due diligence in the government. Relations between Malawi and Tanzania will remain strained by the dispute over the countries’ border in Lake Malawi. China’s economic presence in Malawi is expected to grow, albeit from a low base.
10.0 Other Developments
10.1 Donor Aid Suspension
Norway said that it had suspended budget aid to Malawi because of what it termed “clear signs” that substantial sums of money disappeared from the finance ministry.
10.2 Fuel Price Hike
The Malawi Energy Regulatory Authority announced an increase in the fuel prices by an average of 10%. Petrol increased to MK736.60 per litre from MK680.80 per litre and Diesel increased to MK730.80 per litre from MK657.40 per litre.
10.3 Integrated Production System for Tobacco Paying Off dividends
Government says the introduction of Integrated Production System (IPS) a contract system of tobacco growing and marketing approved in 2012 has stabilised Malawi’s tobacco market and resulted in better prices than before. Minister of Agriculture noted that most farmers who participated in IPS in 2012/13 season benefited from superior returns, since it provided them with training and access to loans and
fertilisers. All of these combined, enabled burley tobacco farmers to have better yields. Under IPS, the growers have doubled their yields per hectare as compared to that of the non-IPS farmers. In addition, improved quality, in turn, led to better average prices for IPS farmers.
10.4 Mis-pricing of Foreign Currency Fueling Depreciation
Financial Market Dealers Association (FIMDA) has stepped in to put to an end the pricing of foreign exchange without basis, a situation that has caused the kwacha to experience a steep depreciation in recent weeks. Government last year devalued the local unit by 49% and floated the kwacha which has seen local unit being priced according to the dictates of the market. But as the economy enters the lean period, the kwacha has been depreciating against major trading currencies although other indicators, including foreign exchange reserves do not indicate that.
10.5 SADC optimistic on New Cabinet
The Southern African Development Community (Sadc) has expressed optimism about the new cabinet the president has appointed, saying it hopes the cabinet will work for the betterment of the country and the region. The president dissolved her cabinet two weeks ago amid reports of massive looting of public funds and hired a new one last week.
10. 6 Donors Query Siphoning of Money
Donors have asked the government to explain the siphoning of money at the Accountant General’s office by government officers, some civil servants have been found with huge sums of money with them which they have not been able to account for. The development comes after the shooting of the budget director who is currently receiving medical treatment in South Africa. There is rampant corruption by both senior and junior government officers and the Financial Intelligent Unit together with the Anti-Corruption Bureau are currently investigating and suspects include some senior government officers.
Malawi Retreats on the Ease of doing Business Rank
Malawi tumbled from 157 to 171 in latest World Bank assessment report on doing business. Among some of the countries that improved in the report are Rwanda, Ivory Coast and Burundi. World Bank’s Country Manager for Malawi, says there is need for Malawi to accelerate the pace at which it is implementing business regulation reforms if the country is to improve on the Doing Business rankings.
10. 7 Malawi Retreats on the Ease of doing Business Rank
Malawi tumbled from 157 to 171 in latest World Bank assessment report on doing business. Among some of the countries that improved in the report are Rwanda, Ivory Coast and Burundi. World Bank’s Country Manager for Malawi, says there is need for Malawi to accelerate the pace at which it is implementing business regulation reforms if the country is to improve on the Doing Business rankings
