Business and Finance

Mixed outlook for Balance of Payment position

Mixed outlook for Balance of Payment position

By Benadetta Chiwanda Mia:

Malawi’s economy is poised to continue facing significant challenges with a weak balance of payment (BoP) position for the greater part of the year, characterised by a persistent current account deficit.

This is highlighted in the recently released 2025 Annual Economic Report, which gives an account of BoP trends and outlook for 2024 through to 2026.

BoP is a comprehensive record of a country’s economic transactions with the rest of the world encompassing imports, exports, investments and financial transfers.

According to the report, Malawi’s current account balance is projected to remain in deficit throughout the forecast period, with the situation worsening in 2025, before potential improvements in 2026.

The current account comprises the country’s transactions related to goods, services and income from investments and current transfers which include remittances that take place between Malawi and the rest of the world.

The report shows that in 2024, the current account deficit slightly increased to $2.079 billion from $2.072 billion the previous year, a modest 0.4 percent rise.

This relative stability was partly due to a reduction in the goods account deficit, which improved from $1.945 billion in 2023 to $1.85 billion in 2024, driven by a 1.4 percent decline in imports.

The services account showed improvements as well, with its deficit decreasing from $540 million in 2023 to $496 million in 2024 due to reduced service imports and a modest 6 percent increase in service exports.

The primary income account also saw progress, with its deficit narrowing from $199.7 million to $163.3 million, thanks to a slowdown in primary income payments.

Conversely, the secondary income account experienced substantial surplus drops, from $612.6 million in 2023 to $430.7 million in 2024—a 29.6 percent decrease—due to diminished receipts from government and non-profit organisations, which fell from $736.9 million to $583 million.

In 2025, the current account deficit is projected to rise further by 5.8 percent to $2.199 billion due to worsening conditions in the goods, services and primary income accounts although slight recovery is anticipated in the secondary income account.

The goods account deficit is forecast to worsen, rising to $1.921 billion in 2025, a 3.84 percent increase.

Export growth, driven by agricultural expansion and diversification, along with advancements in mining and manufacturing, is expected to surge by 15 percent.

However, imports are projected to grow by 8 percent.

Meanwhile, the services account deficit is anticipated to widen from $496 million to $574.7 million, owing to a combined 15.81 percent increase in both service exports and imports.

By 2026, the outlook projects slight improvements, with the current account deficit expected to improve marginally, declining to $2.122 billion, a 3.5 percent decrease.

The goods account is projected to benefit from a nearly 12 percent rise in exports, countering modest import growth.

Economics Association of Malawi President Bertha Bangara Chikadza said a persistent current account deficit exacerbates the country’s trade imbalance.

“A persistent current account deficit signals that a country is spending on foreign goods, services and transfers (e.g. imports and debt repayments) than it earns from exports, investments or remittances. “This is particularly true in Malawi because country statistics indicate that Malawi’s imports are 2.5 times its exports. Additionally, net official remittances for the country have turned negative in the recent past,” Chikadza said.