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Market Report Fortnight ending 11th April 2003 Report
07/03
Fiscal Sector Performance
The fiscal sector continued to register budgetary operations
imbalances attributable to low levels of revenues in
an environment of high expenditures. Latest numbers
released by the Monetary Policy Committee (MPC) indicate
that the cash budget deficit worsened to K4,718.9 million
in January 2003 from K4,153.1 million registered at
the close of December 2002.
This outturn reflected a growth in expenditures, which
outpaced that of revenues. According to the MPC report,
revenues in January 2003 amounted to K3, 255.8 million,
representing an increase of K340 million over K2, 915.8
million collected in December 2002.
On the other hand, expenditures, at K7, 974.7 million,
increased by K905.8 million when compared to K7, 068.9
million spent in December 2002.
The bulk of the budgetary expenditures consisted of
domestic debt repayment and service, which reflected
heavy borrowing by government from the domestic market.
The financial market has of late been dominated by floating
of treasury bills, which is currently witnessing a reversal
of the downward trend in yield rates the market managed
to register during the past two months. The increased
appetite for financial resources by government has inevitably
crowded out the private sector as a result of high costs
of borrowing in addition to the consequent scarcity
of financial resources. This development is unfortunate,
as it will likely translate into subdued future growth
prospects for the economy.
The period under review witnessed firming
up of the Kwacha against the US Dollar when the market
average exchange rate declined to MWK91.4439 from MWK91.6512
to the USD registered during the previous fortnight.
This development, to a larger extent, is a reflection
of an improvement in the foreign exchange situation
in the country.
following the opening of tobacco sales
last month. The foreign exchange market is currently
awash with dollars. This has seen the easing of the
demand for the dollar.
The availability of Dollars and the scarcity of the
Kwacha on the market have worked to the advantage of
the Kwacha exchange rate and we might see the official
Kwacha exchange rate appreciating close to MWK90.00
in the short term.
Financial Markets and Interest Rates
The upward pressure on yield rates has intensified
following the increased need to finance budgetary deficits
through floating government paper in an environment
of scarce liquidity.
During the auction of treasury bills conducted on 4th
April 2003, Treasury increased the required amount to
K900 million after substantially reducing it to K800
million during the previous auction.
Following these developments, the yield rate for the
91 days bill increased to 37.69% from an average of
37.26% recorded on 28th March 2003. The rates for the
182 days and 273 days tenors increased marginally to
38.91% and 39.57% from respective yield rates of 38.81%
and 39.40%.
The market for Reserve Bank of Malawi
Bills experienced subdued activities when there was
low turn up for the bills. During the auction held on
1st April 2003, bidders applied for bills worth K250.59
million, which was all issued.
This saw yield rates for both tenors remaining
high. The rate for the 63 days bill increased to 37%
from 36.97% recorded on 25th March 2003. However, the
yield rate for the 91 days RBM bill, at 37.32%, had
marginally declined when compared to an average of 37.36%
recorded a week before.
The current liquidity squeeze on the market might see
the monetary authorities reducing the issue of RBM bills.
This might continue to check the upward pressure on
yield rates in the short term.
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