MONTHLY ECONOMIC REPORT

Transcription

1 NICO Asset Managers Invest Today for Tomorrow MONTHLY ECONOMIC REPORT JULY 2018 Investment Management Corporate Finance Investor Services

2 LIST OF ACRONYMS ADF: ADMARC: AfDB: AMIS: BOE: BHL: CPI: DSI: ECB: ECF: EIU: ESCOM: EUR: FEWS NET: FISP: FMBCH: FOB: FSI: FSU: GBP: GDP: ICT: IDA: IFAD: IFMIS: IHS4: IMF: MASI: MASL: MERA: MK: MPC: MPICO: MSE: MT: MRA: mvam: MW: NBM: NBS: NGOs: NICO: NITL: African Development Fund Agricultural Development Marketing Corporation African Development Bank Agriculture Market Information System Bank of England Blantyre Hotels Plc Consumer Price Index Domestic Share Index European Central Bank Extended Credit Facility Economist Intelligence Unit Electricity Supply Corporation of Malawi Euro Famine Early Warning Systems Network Farm Input Subsidy Program First Merchant Bank Capital Holdings Plc Free on Board Foreign Share Index Former Soviet Union British Pound Sterling Gross Domestic Product Information and Communication Technology International Development Association International Fund for Agricultural Development Integrated Financial Management Information Systems Fourth Integrated Household Survey International Monetary Fund Malawi All Share Index Meters Above Sea Level Malawi Energy Regulatory Authority Malawi Kwacha Monetary Policy Committee Malawi Property Investment Company Plc Malawi Stock Exchange Metric Tonnes Malawi Revenue Authority mobile Vulnerability Analysis and Mapping Mega Watts National Bank of Malawi Plc NBS Bank Plc Non-Governmental Organisations NICO Holdings Plc National Investment Trust Plc

3 LIST OF ACRONYMS NSO: OECD: OML: OMO: OPEC: PCL: RBM: Rmb: SDF: Sunbird: TB: TCC: TNM: WFP: TSH: UGX: UK: USA: US$: ZAR: ZMK: National Statistical Office Organisation for Economic Cooperation and Development Old Mutual Plc Open Market Operations Organization of the Petroleum Exporting Countries Press Corporation Plc Reserve Bank of Malawi Chinese Renminbi Southern Dark Fired Tobacco Sunbird Tourism Plc Treasury Bills Tobacco Control Commission Telekom Networks Malawi Plc World Food Programme Tanzania Shillings Ugandan Shillings United Kingdom United States of America United States Dollar South African Rand Zambian Kwacha

4 TABLE OF CONTENTS Executive Summary Economic Overview Other Market Developments... Regional Developments Global Developments Outlook for August 2018 and Beyond Malawi Economic Risks Appendices: 1. Selected Economic Indicators (Malawi) Selected Economic Indicators (Tanzania, Uganda, Zambia, Mozambique) Budget Framework. 4. Central Government Budgetary Operations Trend of Debt in Malawi Malawi Selected Economic Indicators GDP Economic Projections /19 Budget Brief Fews Net Seasonal Calendar for a Typical year... 34

5 EXECUTIVE SUMMARY Economic Outlook Malawi The Kwacha is expected to remain stable against the US Dollar in the short-term as a result of continued inflow of foreign currency. In the medium term, the Kwacha is expected to depreciate on account of significant current account deficits and weak investment inflows. The Reserve Bank of Malawi projects an annual average inflation of 9% in 2018 (2017:11.5%), with a medium term inflation objective of 5%. The adoption of inflation targeting monetary policy framework would make it possible for the central bank to support the current disinflation process and keep inflation low, and also to reduce inflation fluctuations and persistence. This would also lead to a fall in nominal interest rates through the reduction of the inflation risk premium of nominal interest rates, thereby increasing the credibility of monetary policy. Interbank rates are expected to remain susceptible to change due to the volatility of liquidity levels in the market but are expected to remain within a band of +2%/-2% around the Policy Rate. Treasury bill yields are expected to remain below the level of monetary policy rate. The EIU revised its import growth forecast to 3.1% from 2.7% a year in , driven by rising domestic demand, some demand for capital goods for infrastructure projects and local maize shortage. Overall, the current-account deficit has been forecasted to rise from an estimated 12.3% of GDP in 2017 to 14.1% in The government will continue to seek external support from non-traditional partners. The bulk of aid will, however, continue to be disbursed as project-based grants and off-budget support to non-government agencies. In 2018, real economic growth is projected to range between 3.60% to 4.50% based on EIU, World Bank, IMF, Ministry of Finance and RBM forecasts. Key Economic Risks Malawi Insufficient power supply will lead to lower productivity and dampen economic growth. High government debt levels create a future obligation for the government to repay the debt plus interest. Global oil price increases will lead to high import costs which may widen the country s trade deficit. Persistently weak export base affects the Kwacha s stability against the major currencies as import values exceed export values. High population growth rates over-crowding on public resources and may reduce per capita income. P A G E 5

6 EXECUTIVE SUMMARY (Continued...) Economic Highlights For July 2018 Malawi Headline inflation for June 2018 decreased to 8.60% from 8.90% in May This was due to decreases in both food inflation to 9.10% from 9.50% recorded in May 2018 and non-food inflation to 8.20% from 8.40% over the same period (Source: NSO). The All-type Treasury bill yield remained steady at 14.50% in July 2018 (Source: RBM). Liquidity levels averaged K9.91 billion per day in July 2018, increasing from K5.71 billion per day in May Access on the Lombard Facility averaged K6.12 billion per day, increasing from K5.10 billion per day in May 2018 at an average rate of 18.00%. Interbank borrowing averaged K6.12 billion at an average rate of 14.61% decreasing from K7.62 billion at an average rate of 15.02% (Source: RBM). In the month of July 2018, the Malawi Kwacha was relatively stable against the US Dollar but depreciated against the other major trading currencies (Source: RBM). Total forex reserves in July 2018 decreased to US$1, million (5.23 months worth of import cover) from US$1, million (5.33 months worth of import cover) recorded in June 2018 (Source: RBM). The stock market was bullish in July 2018, with the Malawi All Share Index (MASI) increasing by 1.71% to settle at 31, points from 30, points the previous month (July 2017: 7.00% increase) (Source: MSE). Staple food prices are beginning to increase in most markets across the country due to increased market demand from poor households that have started relying on market purchases earlier than normal (Source: FEWS.NET). The cumulative results of the tobacco sales for the fifteenth week of the marketing season have shown that the average tobacco price declined by 12.56% to US$1.74/kg from US$1.99/kg in the corresponding period last year (Source: TCC). The Malawi Energy Regulatory Authority (MERA) revised fuel prices upwards effective 17 July 2018 by 7.68%, 9.21% and 10.88% for petrol, diesel and paraffin respectively (Source: MERA) The Reserve Bank of Malawi (RBM) released its monthly economic review for May 2018, which among other economic developments, explains the factors behind the Kwacha s movement against other currencies in the month under review (Source: RBM). Malawi is one of the countries which was invited to attend the 10th summit of BRICS held in South Africa which commenced from 25th July 2018 (Source: BRICS). The National Statistical Office launched the 2018 Malawi Population and Housing Census campaign on 6 June 2018 in preparation for the exercise expected to start in September 2018 for 21 days (Source: NSO) The World Bank conducted consultations with the private sector towards the development of the Country Partnership Framework (CPF) to define its support to Malawi s development efforts from FY19-FY23 (Source: World Bank) P A G E 6

7 1. ECONOMIC OVERVIEW Inflation (Source: NSO) Headline inflation for the month of June 2018 decreased to 8.60% from 8.90% in May 2018 (June 2017: 11.30%). This was due to decreases in both food inflation to 9.10% from 9.50% and non-food 20.0 Inflation (%) (Source: NSO) National inflation to 8.20% from 8.40% for the same period. The month-onmonth headline inflation rate for June 2018 stood at negative 15.0 Food Non food 0.2%, compared to negative 0.60% recorded in the preceding 10.0 month. 5.0 Change Change - Jun-18 May-18 Jun-17 I Month 12 Months Headline inflation 8.6% 8.9% 11.3% -0.30% -2.70% Fo o d 9.1% 9.5% 9.3% -0.40% -0.20% No n-fo o d 8.2% 8.4% 13.2% -0.20% -5.00% Treasury Bill Yields (%) (Source: RBM) Government Securities (Source: RBM) During the month of July 2018, the all-type Treasury bill yield remained stable at 14.50% (July 2017: 19.09%) day 182-day 364-day Total Treasury bill applications for July 2018 stood at K78.31 billion and K70.86 billion was allotted representing a 9.52% rejection rate. The 364 days paper accounted for the highest subscription rate at 41.26%, followed by the 182 days paper at 35.15% and the 91 days paper at 23.59%. On average, the yields for the days paper, 182 days paper and 364 days paper remained steady at 14.00%, 14.50% and 15.00% in July 2018 respectively. Subscriptions per TB Tenor for July 2018 Treasury bills May-18 Apr-18 May-17 Change 1 mo nth Change 12 months 91-day 14.00% 14.00% 21.37% 0.00% -7.37% 182-day 14.50% 14.50% 22.11% 0.00% -7.61% 364-day 15.00% 15.00% 23.19% 0.00% -8.19% All type yield 14.50% 14.5% 22.22% 0.00% -7.72% 364-day TB 41.26% 91-day TB 23.59% There were Open Market Operations (OMO) conducted in July 2018 totaling to K22.69 billion at an average rate of 15.00% compared to K56.29 billion at an average rate of 15.01% recorded in June In July 2017, K69.49 billion was allotted in OMO securities at an average rate of 19.04%. 182-day TB 35.15% P A G E 7

8 1. ECONOMIC OVERVIEW (Continued...) Foreign Currency Market (Source: RBM) In the month of July 2018, the Malawi Kwacha was relatively stable against the US Dollar but depreciated against the other major trading currencies as shown in the table below: CURRENCY Jul-18 Jun-18 Jul-17 % Movement 1 month % Movement 12 months MK/US Dollar % -0.18% MK/GBP % -0.16% MK/ZAR % 1.14% MK/EUR % 0.76% USD/MWK Exchange Rate (Source: RBM) As at end of July 2018, gross official reserves totaled US$ million (3.61 months of import cover), increasing from US$ million (3.48 months of import cover) registered at the end of June 2018 (July 2017: US$ million worth 3.32 months of import cover). Private sector reserves amounted to US$ million (1.62 months of import cover) as at end of July 2018, decreasing from US$ million (1.85 months of import cover) recorded in June 2018 (July 2017:US$ million worth 1.68 months of import cover). Total forex reserves in July 2018 decreased to US$1, million (5.23 months worth of import cover) from US$1, million (5.33 months worth of import cover) recorded in June Total forex reserves of US$1, million (5.00 months of import cover) were recorded in July The total import cover requirement per month is US$209 million. Forex Reserves (US$ million) (Source: RBM) 1, Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Official Reserves Private Sec. Reserves (US$ million) Jul-18 Jun-18 Jul-17 Impo rt Cover (Months) (US$ million) Impo rt Cover (Months) (US$ million) Impo rt Cover (Mo nths) Gross Official Private Sector Total 1, , , P A G E 8

9 1. ECONOMIC OVERVIEW (Continued...) Interbank Markets and Interest Rates (Source: RBM) Liquidity (Source:RBM) Liquidity levels increased in July 2018, averaging K9.91 billion per day from K5.71 billion per day in June Access on the Lombard Facility (discount window borrowing) averaged K6.12 billion per day increasing from K5.10 billion per day recorded in June 2018, at an average rate of 18.00%. Overnight borrowing between banks decreased to an average of K6.12 billion per day in July 2018 at an average rate of 14.61% from K7.62 billion per day in June 2018 at an average rate of 15.02%. Stock Market (Source: MSE) The stock market was bullish in July 2018, with the Malawi All Share Index (MASI) increasing by 1.71% to settle at 31, points from 30, points the previous month (June 2017: 7.00% increase). The year to date return for the MASI stood at 44.75% as at end of July 2018 compared to 27.70% in July Kwacha Billions (3) Monetary Policy and Average Interbank Rates (%) (Source: RBM) The market gainers for the month of July 2018 were NICO (17.39%), TNM (4.17%), NBM (3.33%), NITL (2.74%) and MPICO (0.05%). The market loser was FMBCH (0.01%). During the month, the Domestic Share Index (DSI) increased by 2.40% to 20, points from 20, points (July 2017: 7.02% increase). The Foreign Share Index (FSI) decreased slightly by % to 8, points from 8, points the previous month (July 2017: 0.00% change). Points 36,000 32,000 28,000 24,000 20,000 16,000 12,000 Malawi Stock Exchange Performance (Source: MSE) MASI Interbank rates Jul-18 Jun-18 Jul-17 Monetary Policy rate Change Change (1 Month) (12 months) MK/Share MK/Share MK/Share % % BHL % ILLOVO % 11.03% MPICO % % NBM % 16.54% NBS % 43.14% NICO % % NITL % 33.67% PCL % 35.44% STANDARD % 3.08% SUNBIRD % % TNM % % FMBCH N/A -0.01% N/A OML N/A 2, , N/A N/A OMU 2, N/A N/A N/A N/A MASI 31, , , % 83.79% DSI 20, , , % 53.42% FSI 8, , , % % P A G E 9

10 2. OTHER MARKET DEVELOPMENTS Food Security Update (Source: FEWS.NET) Staple food prices are beginning to increase in most markets across the country due to increased market demand from poor households that have started relying on market purchases earlier than normal due to below average production. However, prices still remain below the five-year average in most markets. It is possible fuel price increases may trigger further staple food price increases. The Malawi Energy Regulatory Authority (MERA) announced a 9% on average fuel price increase for petrol, diesel, and paraffin effective 17 July This will likely cause an increase in transportation costs for maize and other commodities. The current volume of cross border maize imports at 1,763MT, is 77% above last year s due to increased imports in some areas of southern Malawi where traders are importing large volumes for markets in Blantyre. However, these volumes are still 66% below the five-year average. Informal cross border maize exports on the other hand increased by about 14% from the previous month due to increasing exports to Tanzania, but these exports still remain at 50% below the previous year s volumes. Very poor households in southern and central regions are facing stressed food security outcomes and will transition to crisis during the lean season from October 2018 to January 2019, when food prices are at their highest and local cereal supplies are at their lowest. Labor demand and wage rates are currently low as most agricultural activities are seasonally limited. Non-agricultural labour demand is also low as most households that hire labour also have reduced incomes. Tobacco Market Update (Source: TCC) The cumulative results for week fifteen of the tobacco marketing season show that tobacco average price declined by 12.56% to US$1.74 per kg from US$1.99 per kg recorded in the corresponding period during the 2017 tobacco marketing season. Despite this price decline, the value of tobacco traded was 29.41% higher than that registered in the previous corresponding period. Below are the results as at the 15 th week: 2018 To bacco Sales: Week Fifteen Cumulative Sales Versus Same Perio d in 2017 Natio nal % Change Volume (Kg Million) % Value (US$ Million) % Average Price (US$/Kg) % Average Tobacco Prices (USCents/Kg) Sales Value (US$) ,000, ,000, ,000, ,000, ,000,000 50,000, P A G E 10

11 2. OTHER MARKET DEVELOPMENTS (Continued ) Review of Fuel Prices Update (Source: MERA) In June 2018, the Malawi Energy Regulatory Authority (MERA) Board considered recent trends in the world petroleum products prices and changes in other macroeconomic fundamentals in the local market to assess their impact on energy prices. MERA Board observed that the FOB prices of petrol, diesel and paraffin rose by 38.59%, 38.13% and 42.79% respectively in the month of May 2018 when compared to October 2016 FOB prices which form the basis of the ruling pump prices. The landed costs increased by 14.70%, 17.69% and 25.34% for petrol, diesel and paraffin respectively, which qualified all the products for an upward price adjustment. As such, the Malawi Energy Regulatory Authority Board resolved to adjust upwards pump prices for all the three products through adjustment of the deemed landed costs of Petrol, Diesel and Paraffin to reflect the increasing actual landed costs of the products. The prices were adjusted effective 17 July 2018 as follows: Product Previous Pump Prices (MK/litre) Approved Pump Prices (MK/litre) Change (%) Petrol % Diesel % Paraffin % Despite rising global fuel prices which translated into rising FOB and landed costs, MERA had maintained local fuel pump prices for 19 months, with the last adjustment conducted in November MERA had opted to apply the Price Stabilisation Fund (PSF) in order to maintain the fuel pump prices during that period. RBM May 2018 Economic Review (Source: RBM) On 25 July 2018, the Reserve Bank of Malawi released its Monthly Economic review for May 2018, giving highlights on the economic developments during the review month. Among other things, the report explains the factors behind the Kwacha movements against other currencies during the month under review. The report explains the continued Kwacha stability against the United States dollar is as a result of sufficient levels of foreign exchange which managed to offset the impact of Dollar appreciation on the global market. The Kwacha firmed up against the British Pound and the Euro by 3.9% and 3.5%, respectively. The appreciation of the Kwacha against the Pound was explained by a weaker Pound following indication of no interest rates hike from the Bank of England. Similarly, the Kwacha appreciated against the Euro on account of a weaker Euro as the currency s prospects continued to be clouded by political uncertainties particularly in Italy and Spain. In the Asian region, the Kwacha depreciated by 0.5% against the Japanese Yen to trade at K6.7/Yen. However, the Kwacha strengthened by 1.1% and 1.2% against the Chinese Yuan and Indian Rupee, respectively. The Kwacha continued to appreciate against Chinese Yuan on account of a weaker Yuan as the trade war between China and US escalated. Similarly, the Kwacha appreciated against the Indian Rupee due to a weaker Rupee as a result of widening trade deficit. Within the SADC region, the Kwacha strengthened against the South African Rand by 1.3% to trade at K58.26/Rand. The strengthening was on account of a relatively weaker Rand due to strengthening of the US Dollar. Against the Zambian kwacha, the local currency appreciated by 4.8% and traded at K70.83 per Zambian Kwacha as at end May The appreciation was explained by a weaker Zambian Kwacha owing to stronger demand for US Dollars against weaker supply. P A G E 11

12 2. OTHER MARKET DEVELOPMENTS (Continued ) Malawi President s Visit to BRICS Summit Update (Source: BRICS) Malawi and other non-member African countries were invited to attend BRICS ( BRICS-Five major emerging economies which include Brazil, Russia, India, China and South Africa) 10th summit which commenced on 25 July 2018 in South Africa. The President of Malawi, Professor Peter Mutharika, therefore announced plans to borrow from BRICS New Development Bank established in South Africa. The New Development Bank is said to have set aside US$34 billion for infrastructure development in African countries. The Malawi President has therefore advised responsible ministers to work on a proposal that can enable Malawi to access this loan opportunity, specifically to promote infrastructure and energy sector development Malawi Population and Housing Census (Sources: NSO, UN June 2018 Bulletin) On 6 June 2018, Malawi launched the 2018 Population and Housing Census publicity campaign in preparation for the 2018 Population and Housing Census exercise which is expected to start in September 2018 and run for a period of 21 days. The National Statistical Office (NSO) has engaged secretary generals from all major political parties in the country to help in the sensitization process prior to the census to utilize political platforms to aid the sensitization. The census will be funded by the United Nations Population Fund (UNFPA). Different development partners including DFID, USAID, Royal Norwegian Government, Standard Bank, Irish Aid and the UN among others have provided technical and financial support towards the 2018 census. The 2018 census whose theme is Be counted-leave no one behind, departs from the previous ones since data collection will be electronic rather than the traditional method of using questionnaires. These censuses are conducted every ten years, the first and the most comprehensive one done in Others were conducted in 1977, 1987, 1998, and These censuses are carried out by NSO mandated by the Statistics Act to collect, analyse, publish and disseminate official statistics for evidence-based policy formulation, decision-making and monitoring and evaluation of development programmes. World Bank s Country Partnership Framework (CPF) Consultations with Private Sector Representatives (Source: World Bank) The World Bank Group in Malawi is developing a new Country Partnership Framework (CPF) to define its support to Malawi s development efforts from FY2019 to FY2023. As such, the Bank is conducting consultations with various stakeholders which include government officials, parliamentarians, the private sector, civil society, academics, among others. The World bank, on 2 August 2018, conducted CPF consultations with the private sector representatives in order to gather some ideas on what could be the strategic areas and actions the Bank should consider for its FY2019-FY2023 strategy. The current strategy is informed by the third Malawi Growth and Development Strategy (MGDS III), and also by the World Bank Group Systematic Country Diagnostic (SCD) and the Completion Learning Review (CLR) of the last country strategy. The goal of the strategy is to help Malawi eliminate extreme poverty and to promote shared prosperity. P A G E 12

13 3. REGIONAL MARKET DEVELOPMENTS Sub-Saharan Africa According to the IMF s April 2018 World Economic Outlook, real economic growth in sub-saharan Africa is projected to rise gradually during the period to 3.4% and 3.7% respectively, as the challenging outlook in commodity exporters gradually improves. South Africa s real economic growth is expected to strengthen from 1.3% in 2017 to 1.5% and 1.7% in 2018 and 2019 respectively. Business confidence is likely to gradually firm up with the change in leadership, but growth prospects remain weighed down by structural bottleneck. The medium term outlook is subdued, with growth expected to stabilise at 1.8% over (Source: IMF). World Bank has projected sub-saharan Africa regional real economic growth at 3.1% in 2018, and to an average of 3.7% by Sub-Saharan African economies were hit hard by a crash in commodity prices which slowed growth, reduced government revenues and weakened several of the region s currencies. While Nigeria, South Africa, and Angola are expected to see a gradual pick-up in growth, economic expansion will continue at a solid pace in the West African Economic and Monetary Union (WAEMU), and strengthen in most of East Africa. These forecasts are based on the expectations that oil and metals prices will remain stable, expansion in global trade will stay robust, and external financial market conditions will continue to be supportive (Source: World Bank). Zambia Zambia wants to refinance portions of its Chinese debt and Eurobonds as part of a debt austerity plan. A high level mission from Zambia will travel to China in August 2018 to firm up discussions in order to create smooth cash flows. Zambia announced in December 2017 that it would begin refinancing Eurobonds worth of US$3 billion in 2019 to reduce the cost of debt servicing. In June 2018, Zambia decided to delay all planned borrowing indefinitely, slowing down the accumulation of new debt amid worries about the risk of distress (Source: Reuters). The Central Statistical Office monthly report for July 2018 has shown that year-on-year inflation for July 2018 increased to 7.8% from 7.4% recorded in June 2018 owing to increases in both food and non-food items. The year-on-year food inflation rate was recorded at 8.1% in July 2018 from 7.5% the previous month. Non-food inflation rate stood at 7.6%, increasing from 7.3% recorded in April 2018 (Source: Central Statistical Office). The IMF team visited Zambia for consultations from July on the country s debt levels after rejecting the country its borrowing plans from the IMF. Zambia has since come up with a new debt plan it hopes will clear the way for the IMF to agree on a US$1.3 billion loan (Source: Reuters). Zimbabwe As at 20 July 2018, Zimbabwe s tobacco sales reached a record high of million kilograms with a week to go before the selling season ended, raising hopes that the country s second biggest export could help ease the country s severe Dollar shortage. Growing demand from China and funding from private tobacco companies boosted output, which plunged to its lowest in 2008 (Source: Reuters). Zimbabwe s year-on-year inflation rate for June 2018 rose to 2.9% after remaining steady at 2.7% for three consecutive months from March The month-on-month inflation remained steady at 0.0% from the previous month (Source: Reserve Bank of Zimbabwe). P A G E 13

14 3. REGIONAL MARKET DEVELOPMENTS (Continued...) Tanzania Tanzania s central bank has taken over the management of mid-sized commercial lender, Bank M, as the lender has critical liquidity problems and is unable to meet its obligations. The central bank stated that continuation of the bank s operations in the current liquidity conditions is detrimental to the interests of depositors and poses systemic risk to the stability of the financial system (Source: Reuters). The Monthly Economic Review for June 2018 by the Bank of Tanzania has shown that the country s external debt stock, comprising public and private sector debt, was US$19,310.2 million at the end of May 2018, an US$85.2 million decrease from the amount recorded in April The decline was on account of debt repayments coupled with appreciation of the US Dollar against the other currencies in which the debt is dominated. Year-on-year, the stock increased by US$2,035.3 million on account of new disbursements, exchange rate fluctuations and accumulation of interest arrears (Source: Bank of Tanzania). Tanzania s annual headline inflation for the month of June 2018 decreased to 3.4% from 3.6% recorded in May The annual inflation rate for food consumed at home and away from home increased to 3.8% in June 2018 from 3.2% recorded in May In addition, the 12 month index change for non-food products in June 2018 decreased to 4.0% from 4.5% recorded in May (Source: Tanzania National Bureau of Statistics). Uganda Tanzania intends to build a pipeline to pump gas to neighbouring Uganda, a step in the two countries bid to expand energy cooperation. In 2016, the two countries agreed to develop a crude oil export pipeline to help transport land-locked Uganda s crude reserves from fields in the country s west to offshore markets (Source: Reuters). The Monetary Policy Committee decided to maintain the Central Bank Rate (CBR) at 9.0% during its June 2018 MPC meeting stating that the current stance of monetary policy is appropriate given the forecast inflation trajectory and the current state of the economy. The Bank of Uganda assessed the risks to the inflation forecast to have moved to the upside and expects to see inflation rise faster than previously projected but still remain within the 5% target in the next 12 months. Downside risks to the macro-economy include the exchange rate depreciation coupled with increasing oil prices (Source: Bank of Uganda Bureau). The annual headline inflation for July 2018 has been recorded at 3.1% from 2.1% registered in June 2018, representing a 1.0% rise. The rise is largely attributed to the annual core inflation that accelerated to 2.5% from 0.8%% over the same period due to an increase in annual services inflation that registered 4.1% in July 2018 from 1.7% in June 2018 (Source: Uganda Bureau of Statistics). Mozambique Mozambique s government has approved contracts giving exclusive rights to energy companies to act on concessions awarded to them to explore for oil following four years of negotiations and delays that threatened to derail the projects. The offshore oil reserves are said to be enough to supply energy to Britain, France, Germany and Italy for over 20 years (Source: Reuters). The International Monetary Fund has encouraged the Mozambican government to rely as much as possible on external grants and highly concessional loans for its financing needs. In a statement issued at the conclusion of a visit to Mozambique on 3 August 2018, the IMF also said that Mozambique s issuance of debt guarantees should follow new, stricter approval procedures. In 2016, Mozambique admitted to US$1.4 billion of previously undisclosed loans, prompting the IMF to cut off support and triggering a currency collapse and debt default (Source: IMF). P A G E 14

15 3. REGIONAL MARKET DEVELOPMENTS (Continued) South Africa South African power utility provider Eskom closed in on a wage deal with trade unions on 3 August 2018, as two large unions sought a mandate from their members to Eskom s latest salary offer after weeks of negotiations. The Solidarity union said it had accepted a salary increase of 7.5% this year and 7% next year and the year after, plus an inflation-linked increase in housing allowances and a one-off cash payment of 5,000 Rand ($370). Eskom was forced to cave in to union demands for higher pay after protesting workers forced some generating units to be switched off leading to power outages (Source: Reuters). South African Rand has extended losses against the US Dollar in August 2018 due to escalating trade tensions between the United States and China. As at 3 August 2018, the Rand traded at per Dollar, 0.37% weaker than its overnight close. The Rand with its emerging market counterparts have become under sustained pressure, with escalation of trade wars being the primary driver (Source: Reuters). On 30 July 2018, the International Monetary Fund kept South Africa s economic growth forecast for 2018 unchanged at 1.5% but warned that the economy faced several risks, mainly the rapid increase in public debt and potential bailouts to state firms. Public debt as a share of GDP has doubled over the last decade, depleting fiscal buffers and constraining fiscal policy space (Source: Reuters). Other Countries The executive board of the IMF will examine Congo Republic s request for a bailout on 6 July Like other Central African oil producers, Congo has been hit by low crude prices and is struggling with a debt of over US$9 billion, which is 110% of GDP (Source: Reuters). The IMF has projected that Benin s economy is expected to grow by 6% in 2018, up from 5.6% in 2017, as cotton production reached its record highs and the economy of neighbouring Nigeria strengthens. The country s law cotton output for the 2017/18 season is projected to increase by 28% from the previous season, to 578,000 tons (Source: Reuters). Botswana s economy contracted by 1.5% quarter-on-quarter in the first three months of 2018 after expanding by 5.5% in the final quarter of On a year-on-year basis, GDP grew by 4.8% in the first quarter after expanding by 6.5% in the preceding year. Hotels and restaurants remained the main contributors followed by mining (Source: Reuters). Saudi Arabia will invest at least US$10 billion in South Africa, mostly in the energy sector, including building oil refineries. This was in response to part of South Africa s new administration drive to attract US$100 billion in investment to boost the ailing economy (Source: Reuters). Ghana s central bank kept its benchmark interest rate unchanged at 17% on 23 July 2018, mindful of the possible impact of inflation pressures on emerging economies. Specifically, the monetary policy committee cited that global conditions are characterised by geopolitical tensions and uncertainties, and a possible further tightening of the US monetary policy is expected to have adverse impacts on capital flows and currency markets for the emerging market and frontier economies (Source: Reuters). The IMF has stated that Algeria s decision to turn to monetary financing to cut budget deficits could cause higher inflation as the country s non-oil sector remains weak. Late last year, Algeria approved a law allowing the central bank to lend directly to the public treasury to overcome deficits after a fall in the country s energy earnings (Source: Reuters). * Refer to Appendix 2 for more details on historical inflation and currencies for selected countries. P A G E 15

16 4. GLOBAL DEVELOPMENTS Economic growth Per Capita Real GDP Growth (%) (Source: IMF) The April 2018 IMF s World Economic Outlook (WEO) has projected that global growth will strengthen from 3.8% in 2017 to 3.9% in 2018 and in 2019, driven by a projected pick up in growth in emerging markets and developing economies and resilient growth in advanced economies. Beyond 2019, global growth is projected to gradually decline to 3.7% by the end of the forecast horizon. The slowdown is entirely because of advanced economies, where growth is projected to moderate in line with their modest potential growth; growth across emerging market and developing economies is expected to stabilize close to the current level. Advanced economies are projected to grow at 2.5% in 2018, 0.2 percentage points higher than in 2017 and 2.2% in Positive revisions reflect stronger prospects for the Euro area and Japan and the spillover effects of expansionary fiscal policy in the United States. Growth is projected to decline to 1.5% over the medium term, broadly in line with modest potential growth. Despite this slowdown, GDP is projected to remain above potential in 2023 in many advanced economies. Growth in emerging markets and developing economies is expected to increase from 4.8% in 2017 to 4.9% in 2018 and 5.1% in The projected pickup in growth reflects improved prospects for commodity exporters after three years of weak economic activity. Beyond 2019, growth is projected to stabilize at about 5% over the medium term (Source: IMF) Global Oil Developments Crude Oil Price Movements With reference to the Monthly Oil Market Report for July 2018 issued by OPEC, the OPEC reference basket (ORB) eased by 1.2% to an average of $73.22 per barrel in June The ORB ended the first half year of 2018 at US$68.43/barrel, up more than 36% since the start of the year. In 2019, world oil demand is forecast to grow by 1.45 million barrels per day (mb/d) year on year, compared to 1.62mb/d in Non-OPEC oil supply for 2019 is forecast to grow by 2.1 mb/d year-on-year, broadly unchanged from This is mainly due to the expected increase in North America and as new project ramp ups in Brazil. According to the EIU, the price of dated Brent blend rose to nearly US$80/barrel in late May 2018 and in late June 2018, an increase of 20% compared with the start of 2018 and the highest level since November However, prices moderated to P A G E 1 6

17 4. GLOBAL DEVELOPMENTS (Continued...) Global Oil Developments (Continued ) an average of US$77/barrel in the first half of July 2018, reflecting market uncertainty over rising global trade tensions and OPEC s production plans for the rest of The EIU continues to expect several factors to work in opposing directions on oil prices, keeping them relatively range-bound in (Sources: OPEC, EIU). Currency movements Since April 2018, the US Dollar has been strong against most of the other currencies, as financial markets have become more confident that the Federal Reserve Bank (the Fed) will accelerate the pace of monetary tightening, and more concerned that an increase in global energy prices, rising US interest rates and US-led protectionism policies could dampen growth elsewhere. The aggressive trade policies pursued by the US are a complicating factor. On their own, higher tariffs should lead to a stronger US Dollar as financial markets anticipate a smaller trade deficit, higher inflation and tighter monetary policy. However, if escalating trade disputes led to an unexpected slowdown in US economic growth, or if investors were to lose confidence in the US's continued pre-eminence in the global financial and trading system, the overall impact on the Dollar could be negative. Beyond 2019, the outlook for the US dollar is unambiguously negative, as the US business cycle turns and the Fed begins an easing cycle. British Pound to US Dollar (July 2017-July 2018) Source: Bloomberg An eventual depreciation in the US Dollar will provide little relief to emerging economies that have experienced sharp currency depreciations since April Overall, The EIU expects that most emerging-market currencies will be able to weather a moderately faster pace of monetary tightening in the US, provided that overall economic conditions remain favourable. As economic momentum has slowed and the Italian elections have raised concerns about populist challenges to European integration, the Euro has weakened, falling below US$1.17: 1 at the end of June In , the Euro will remain under pressure from political risk in Italy and from monetary tightening in the US. The Euro is expected to strengthen, averaging US$1.22: 1 in , on the expectation that the region's recovery will continue at the same time as the US economy enters a cyclical downturn and supported by large currentaccount surplus (Source: EIU). P A G E 1 7

18 4. GLOBAL DEVELOPMENTS (Continued...) Global trade The World Trade Organisation (WTO) press release in April 2018 shows that world merchandise trade growth is expected to remain strong in 2018 and 2019 after posting its largest increase in six years in 2017, but continued expansion depends on robust global economic growth and governments pursuing appropriate monetary, fiscal and especially trade policies. The WTO anticipates merchandise trade volume growth of 4.4% in 2018 to moderate to 4.0% in However, escalating trade tensions may already be affecting business confidence and investment decisions, which could compromise the current trade outlook. Volume of World Merchandise Trade, 2015Q1-2018Q4 With respect to trade tensions, the EIU expects global trade to be overshadowed by the ongoing dispute between China and the US. In June 2018, the US trade representative confirmed that US$34 billion worth of China s goods would be subject to additional tariff increases of 25% from 6 July 2018, with the majority of the targeted products consisting of intermediate goods and capital equipment. China responded by proportionately raising import duties on US$34 billion of US goods. The expected rise in these protectionism policies is projected to slow global trade in to an average of 3.5% a year. Note: In recognition of the high degree of uncertainty associated with any forecast under the circumstances, the above chart uses shaded bands to illustrate a range of possible trade outcomes in the forecast period. Further escalation in trade restrictive policies or other shocks that negatively affect global economic activity could result in trade growth outside of this range. Increased use of restrictive trade policy measures and the uncertainty they bring to businesses and consumers could produce cycles of retaliation that would weigh heavily on global trade and output. Faster monetary tightening by central banks could trigger fluctuations in exchange rates and capital flows that could be equally disruptive to trade flows. Finally, worsening geopolitical tensions could reduce trade flows, although the magnitude of their impact is unpredictable (Sources: WTO, EIU). Interest Rate Movements The 3 months US Libor rate (the cost of banks to borrow funds in US Dollars) remained relatively steady at 2.34% in July 2018 from the preceding month. The US Libor for 6 months increased to 2.53% from 2.50% over the review period. The US Treasury yield (10 years) also rose to 2.97% in July 2018 from 2.86% in June 2018 (Source: Wall Street Journal, Bloomberg). Jun-18 Jul-18 % Change US Fed Rate 2.000% 2.000% 0.000% US Libor (3 months) 2.337% 2.339% 0.002% US Libor (6 months) 2.501% 2.529% 0.027% US Treasury yield (10 years) 2.860% 2.970% 0.110% BOE Rate 0.500% 0.500% 0.000% ECB Rate 0.000% 0.000% 0.000% P A G E 1 8

19 5. OUTLOOK FOR AUGUST 2018 AND BEYOND - MALAWI Exchange Rates The Kwacha has been relatively stable against the US Dollar in July 2018, maintaining the trend that has lasted since The Kwacha is expected to remain stable in the short-term due to continued availability of foreign exchange reserves, which are adequate to guard against the Kwacha volatility. The ongoing 2018 tobacco marketing season is expected to continue supporting the Kwacha through boosting the build up of foreign exchange reserves. However, in the medium to long term the Kwacha is expected to depreciate on account of the significant current account deficit and weak foreign direct investment (Source: RBM). POSSIBLE IMPACT: A stable exchange rate may enhance predictability of import costs. However, the depreciation of the Kwacha in the medium to long term could lead to higher import costs and relatively cheap domestic exports on the international market. Consequently, this development is expected to improve the country s trade balance. Inflation Food inflationary pressures subsided in June 2018 as evidenced by a drop in food inflation rate recorded in the month. Despite the recent registered increase in maize prices across the markets as noted by Fews net, continued availability of food in the post-harvest season is expected to keep these pressures minimal. Food security outcomes are expected to deteriorate during the lean season from October 2018 to January 2019 when food prices are at their highest and local cereal supplies are at their lowest (Source: Fewsnet), thereby leading to build up in food inflationary pressures. However, significant carry-over stocks from the previous agricultural season are expected to play an important role in keeping significant food inflationary pressures in check. POSSIBLE IMPACT: High inflation rates raise the cost of investment thereby hampering private sector growth. Low inflation rates foster improved private sector activity since they lead to reduced lending rates, and thereby the cost of investment. Non-food inflation may increase due to the rise in local fuel prices as a result of rising global oil prices driven by the global reduction in oil production and the rising tensions in the Middle East. Other factors that may put pressure on non-food inflation include the public sector wage increases, housing cost increases and fiscal overruns, including the election-related expenditures in the 2019 elections. The Ministry of Finance, Economic Planning and Development expects average inflation in 2018 to decline to a single digit of 7.9% (2017: 11.5%) with the end of period inflation rate at 10.1%. According to the ministry, a reduction in food production will exert pressure on food inflation while the energy challenge is likely to have a negative impact on nonfood inflation. In 2019, the annual average inflation is projected at 8.2% with the end of period rate of 9.0% contingent on good rains. The RBM projects an annual average inflation of 9% in 2018 and aims for a medium-term inflation target of 5%. (Sources: RBM, EIU, FEWS NET, Ministry of Finance, Economic Planning and Development). P A G E 1 9

20 5. OUTLOOK FOR AUGUST 2018 AND BEYOND - MALAWI (Continued ) External Sector Exports performance may be hindered in 2018 on the back of variability in weather conditions, infrastructure challenges, a lack of finance for farmers and low technology agricultural techniques. These continue to expose the external sector to sudden terms of trade shocks. In order to cushion the country against these shocks, and to improve competitiveness, there is need to accelerate the diversification of exports and implement structural reforms aimed at developing capacity to export. POSSIBLE IMPACT: Lower export values may decrease the inflow of forex which could widen the trade balance if inflows are unsustainable. The decrease in foreign exchange inflow may also affect the exchange rate. The EIU revised its import growth forecast to 3.1% from 2.7% a year in , driven by rising domestic demand, some demand for capital goods for infrastructure projects and local maize shortage. Furthermore, the services balance will remain in deficit, owing to high cost of transporting goods into and out of a landlocked country. Primary income debits are expected to increase in US Dollar terms as the cost of debt-servicing increase and primary income deficit will increase steadily as a proportion of GDP. Overall, the current-account deficit has been forecasted to rise from an estimated 12.3% of GDP in 2017 to 14.1% in This is expected to narrow to 12% of GDP in 2020 as agricultural exports recover and food imports decline. These projections are contingent on normal rainfall patterns and any significant disruption would prompt a revision of the current account deficit forecast (Sources: EIU, Ministry of Economic Planning and Development). Monetary Policy The RBM plans to adopt a more forward looking monetary policy regime such as inflation targeting, where the policy rate is set as an anchor for short term interest rates, particularly inter-bank rate, to ensure that such short-term interest rate is kept within a defined corridor around the policy rate. Traditionally, RBM has been using a monetary aggregate targeting framework based on a quantity theory of money, where the effectiveness of monetary policy relies on the stability of money demand and velocity of money. However, the effectiveness of this framework is noted to have been impaired as it is predominantly backward looking with limited scope for future economic analysis and ignores the increasing role of expectations in macroeconomic developments. Interbank rates are expected to remain within a band of +2%/-2% around the Policy Rate (Source: RBM). Treasury bill yields are expected to be below the Monetary Policy Rate level. POSSIBLE IMPACT: The adoption of inflation targeting monetary policy framework would make it possible for the central bank to support the current disinflation process and keep inflation low, and also to reduce inflation fluctuations and inflation persistence. This would also lead to a fall in nominal interest rates through the reduction of the inflation risk premium of nominal interest rates, thereby increasing the credibility of monetary policy. P A G E 2 0

21 5. OUTLOOK FOR JUNE 2018 AND BEYOND MALAWI (Continued...) International Relations The Government will continue to seek external support from nontraditional partners, including China and India, and their economic increase the availability of forex, leading to POSSIBLE IMPACT: External support may presence in Malawi is expected to grow. The bulk of aid will, however, the stability in Kwacha and forex reserves maintained of the required three months import cover threshold. continue to be disbursed as project-based grants and off-budget support to non-government agencies. Furthermore, although aid will increase, a legacy of persistent institutional weaknesses mean that it will not reach historical levels, reflecting loss of donor confidence (Source: EIU). Fiscal Policy The 2018 Annual Report for the Ministry of Finance, Economic Planning and Development has highlighted that government will continue to implement measures to create fiscal space for inclusive and sustainable economic growth. In the medium term, the government, through automation of tax administration and widening of the tax base, anticipates that revenue performance will improve and thus create additional fiscal space. POSSIBLE IMPACT: Higher government expenditures may lead to wider fiscal deficit which may perpetuate increased government domestic borrowing. Increased government borrowing could raise interest rates and crowds out private investment. However, this expected revenue increase will be accompanied by increased expenditure of K1.4 trillion from the K1.3 trillion in the preceding fiscal year as indicated in the 2018/19 budget statement. Hence, government intends to finance its expenditure overruns through foreign and domestic borrowing, with the latter estimated at K176 billion (3.2% of GDP) in the 2018/19 budget. The RBM Financial and Economic Review for the first quarter of 2018 indicated rising public debt, with 18.7% increase on annual basis, due to increased foreign and domestic debt. Increased public debt could increase the interest rate burden on debt repayments and exert more pressure on the country s fiscal position. The EIU expects fiscal deficit to widen from an estimated 3.7% of GDP in 2016/17 to 4.4% of GDP in 2017/18 owing to high government expenditure and revenue underperformance. The Ministry of Finance, Economic Planning and Development expects fiscal deficit to stand at 3.8% of GDP in 2018/19 fiscal year. Furthermore election-related expenditures in the forthcoming 2019 elections are expected to exert more pressure on fiscal policy stance. (Source: Ministry of Finance, Economic Planning and Development, EIU) P A G E 2 1

22 5. OUTLOOK FOR AUGUST 2018 AND BEYOND MALAWI (Continued...) Economic Growth In 2018, real economic growth is projected to range between 3.60% to 4.50% based on EIU, World Bank, IMF, Ministry of Finance and RBM forecasts. The EIU has projected a 3.6% growth, with this forecast partly dependent on sufficient agricultural output and power supply, a reduction in government borrowing and prudent macroeconomic management to avoid further instability. The EIU already expected market distortions in 2017 to have a carry-over effect on the size of the maize harvest in 2018, owing to both a loss of confidence and undercapitalization of farmers. The armyworm outbreak stands to aggravate this trend and, as agriculture accounts for one third of GDP, the EIU expects a negative impact on the overall economic growth. This projection is also partly attributed to expected slow growth in tobacco production and the industrial sector, which is unlikely to re-emerge as the key driver of growth as it will struggle to compete on the international market. POSSIBLE IMPACT: Economic slowdown will lessen donor and investor confidence and decrease private sector activity. Decreased private sector activity will also have a negative impact on economic growth. GDP Projections Real GDP Growth Projections EIU 4.40% 3.60% 4.80% 4.80% IMF 4.50% 4.00% WORLD BANK 4.00% 3.70% GOVERNMENT 5.00% 4.50% 6.00% 6.00% RBM 5.10% 4.00% Average Real GDP 4.60% 3.96% 5.40% 5.40% The Ministry of Finance, Economic Planning and Development has projected a 4.5% economic growth in According to the ministry, growth will be driven by the non-agricultural economy, tobacco production, exports, and investment in infrastructure. Agricultural growth is anticipated to be slower than last year due to the low crop yield, especially for maize following the effects of fall armyworm infestation and dry spells during the early part of the growing season. Growth prospects are also constrained by delayed improvement in power generation. The World Bank on the other hand, has projected real economic growth to moderate to 3.7% for 2018 from an estimated 4.0% in 2017 due to an expected decline in agricultural production. Furthermore, the performance of industry and services is forecasted to remain weak as structural challenges related to the intermittent supply of power and water remain a significant constraint on production. The poor prospects are further compounded by the projected low agricultural output, which is likely to reduce raw materials for agro-processing. Some of the risks to economic growth in 2018 include insufficient power supply which remains a key drag on industrial performance, high lending rates, increase in government debt, weak export base, high population growth rates and weather pattern volatility. (Sources: RBM, EIU, IMF, World Bank, Ministry of Finance, Economic Planning and Development ) P A G E 2 2

23 6. ECONOMIC RISKS ECONOMIC RISKS IMPACT ON ECONOMY MITIGATION MEASURES Insufficient power supply 1. Commercial productivity remains small scale as large scale enterprises are difficult to implement with limited power supply 2. Low industrial productivity in the manufacturing sector resulting in low economic productivity and dampening economic growth. 3. Decline in tourism levels as it dampens tourists appetite to visit the country which results in lower income and growth in the industry. 4. Deferment of development by investors. 1. Encourage use of energy saver bulbs. 2. Rehabilitate and develop new power plants. 3. Public-Private Partnerships to enhance energy production through alternative power sources. 4. The entrance of Independence Power Producers (IPPs) may help boost power generation High population growth rates 1. Reduced per capita income. 2. Over-crowding on public resources. 3. Resources which could have been allocated to more productive activities are used to take care of the growing population. 1. Civic education to raise aware ness on the need to have less children. Increase in government debt 1. Creates a future obligation for government which may keep the budget deficit large. 2. Crowds out the private sector hence reducing the expansion of the private sector as funds are not available. 1. Reduce government expenditure by tightening fiscal policy. 2. Increase government revenue base to finance debt. High Interest Rates 1. High lending rates will lead to slower private sector growth and a decrease in capital investments. 1. Reduction of the Monetary Policy Rate. 2. High interest rates will also lead to higher loan impairments for banks which will reduce funds that may be used to lend other private investors. It also puts customer deposits at risk if the bank were to fail. P A G E 2 3

24 6. ECONOMIC RISKS (Continued...) ECONOMIC RISKS IMPACT ON ECONOMY MITIGATION MEASURES Global tobacco lobby (anti-smoking) Incidents of alleged theft and corruption within the public sector Uncertainty in the external environment Dispute with Tanzania resulting in cancellation of oil explorations activities 1. Decline in demand for Malawi tobacco and services from supporting industries resulting in lower commodity prices. 2. Reduction in export earnings (tobacco accounts for 60% of Malawi s export earnings). 3. Reduced employment opportunities in the tobacco and supporting industry. 4. Lower income for farmers- small holder and commercial. 1. It will lead to a misuse of resources as areas of great need do not receive the right resources and thereby hampering growth. 2. Loss of aid funding as donors become unwilling to send aid, which could affect government spending and forex availability. 3. Negatively affect the ability for external borrowing even for the private sector due to the negative image of the country. 4. Negatively impacts the country s sovereign credit risk ratings. 1. Dampening export demand for major export commodities i.e. tobacco, tea, cotton and sugar. 2. Declining investor interest in Malawi resulting in fewer investments and less foreign currency coming into the country. 3. Declining remittances from abroad, hence contributing to lower forex levels. 4. Reduced access to foreign capital, hence financing not available or difficulties in accessing letters of credit. 5. Impaired growth and Balance of Payments (BOP) due to declining exports and low foreign investments. 6. Decline in tourism levels leading to lower forex revenues. 1. Loss in possible source of revenue for government. 2. Loss in possible source of forex for Malawi. 3. Loss in possible employment opportunities for Malawians. 1. Diversify into other sectors such as mining and cotton e.t.c. 2. Engage in aggressive tourism marketing. 1.Tighter controls and measures with better implementation of the policies. 2. More transparency in the public sector and government. 1. Diversification of export base of products. P A G E 2 4

25 7.APPENDIX Appendix 1: Selected Economic Indicators for Malawi Appendix 2 : Selected Economic Indicators for Tanzania, Uganda, Zambia and Mozambique Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 TANZANIA Exchange rate US$ 2, , , , , , , , , , , , , GBP 2, , , , , , , , , , , , , ZAR EUR 2, , , , , , , , , , , , , Inflation % N/A Bank rate % UGANDA Exchange rate US$ 3, , , , , , , , , , , , , GBP 4, , , , , , , , , , , , , EUR 4, , , , , , , , , , , , , Inflation % Central Bank Rate % ZAMBIA Exchange rate US$ GBP ZAR Inflation % Bank rate % MOZAMBIQUE US$ ZAR EUR Inflation% P A G E 2 5

26 Appendix 3: Budget Framework (Source: Ministry of Finance) 2015/ / / / / /19 K Billion (Approved) (Approved) (Revised) (Proposed) (Approved) (Proposed) Total Revenues ,108 1,108 1,261 Domestic revenue ,052 Grants Budgetary support Earmarked grants 90 Total Expenditures 930 1,149 1,129 1,299 1,300 1,504 Recurrent expenditure ,104 Wage & salaries Interest on debt Investment Expenditure Deficit/Surplus (166) (174) (130) (191) (192) (243) Deficit as a % of Revenue -22% -17% -13% -17% -17% -19% Kwacha Billions 1,600 1,400 1,200 1, / / /16 (approved) National Budget 2016/17 (proposed) 2016/17 (Approved) 2016/17 (revised) 2017/18 (proposed) 2017/18 (Approved) 2018/2019 (Proposed) Total Revenues ,108 1,108 1,261 Total Expenditures ,136 1,149 1,129 1,299 1,300 1,504 P A G E 2 6

27 Appendix 4: Central Government Budgetary Operations in Millions of Kwacha (Source: Reserve Bank of Malawi) Appendix 5: Trend of Public Debt in Malawi (Source: Ministry of Finance) 3,000 2,500 In Kwacha Billions 2,000 1,500 1, Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Dec 2015 Jun 2016 Dec 2016 Jun 2017 Dec 2017 Domestic External ,057 1,241 1,095 1,350 1,486 Total Public Debt ,045 1,254 1,585 1,987 1,819 2,196 2,471 P A G E 2 7

28 Appendix 6: Malawi Selected Economic Indicators in Billions of Malawi Kwacha (Source: RBM) P A G E 2 8

29 Appendix 7: GDP Malawi (Source: EIU) Restaurants and Hotels, 1.3 Education, 4.5 Recreation & Culture, Base Year Misc-ellaneous, 3.0 Recreation & Culture, 0.9 Education, 2.1 Communication, 3.7 December 2017 Base Year Restaurants and Hotels, 2.0 Miscellaneous, 1.6 Communication, 5.8 Transportation, 8.4 Transportation, 6.6 Health, 2.9 Health, 1.4 Furnishing & Household, 4.2 Housing, Water & Electricity, 14.7 Food, 50.2 Furnishing & Household, 4.6 Housing, Water & Electricity, 23.1 Food, 45.2 Clothing & footwear, 3.2 Alcoholic drinks & Tobacco, 2.5 Clothing & footwear, 2.9 Alcoholic drinks & Tobacco, 2.5 P A G E 2 9

30 Appendix 8: Contribution to GDP by Sector Appendix 9: Malawi Economic Growth (Source: EIU) P A G E 3 0

31 Appendix 10: Malawi Projections per Sector (Source: Ministry of Finance) Global Projections (Source: EIU) P A G E 3 1

32 Appendix 11: PROJECTIONS Global Projections (Source: IMF) P A G E 3 2

33 Appendix 12: 2018/19 Budget Brief (MK Million) (Source: Ministry of Finance) P A G E 3 3

34 Appendix 13: Seasonal Calendar for a Typical Year APPENDIX 14: MALAWI S MAIN EXPORT COMMODITIES IN US DOLLAR MILLIONS (Source: Ministry of Finance) Disclaimer This report has been prepared for indicative purposes only. Whilst every effort has been made to ensure the accuracy of information contained herein no responsibility or liability whatsoever resulting from the use of information contained in this report is accepted by NICO Asset Managers Limited. Recipients of this report shall be solely responsible for making their own independent appraisal and investigation into all matters contemplated in this report. P A G E 3 4

35 NICO ASSET MANAGERS LIMITED NICO Asset Managers Limited is a specialist investment management and advisory firm, providing a premier range of investment management, corporate finance, infrastructure development and investor services to institutional and individual investors. We are registered with the Reserve Bank of Malawi as a Portfolio/Investment Manager, Investment Advisor and Transfer Secretary. We are a wholly owned subsidiary of NICO Holdings Plc. To be the preferred provider of investment and financial solutions through a culture of excellence and innovation To provide innovative investment and financial solutions that grow our client's wealth Our services Registered by the Registrar of Financial Institutions (Reserve Bank of Malawi) RBM Portfolio/Investment Manager Licence No: PM001/16 RBM Transfer Secretarial License No: TS001/18 Contact Us Head Office Lilongwe Branch NICO Asset Managers Limited NICO Asset Managers Limited 19 Glyn Jones Road Corner Kenyatta Drive Chibisa House NICO Centre P.O Box 3173 P.O Box Blantyre Lilongwe 3 Tel no: /086 Tel no: /086 Fax no: Fax no: invest@nicoassetmanagers.com Website: