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Business confidence drives import cover

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Reserve Bank of Malawi Governor, Dalitso Kabambe, has attributed the improved import cover in the past couple of months to confidence the private sector has in the economy.
Import cover is the amount of foreign exchange that the country maintains for importation of strategic goods and commodities. Import cover is expressed in months and one common rule of thumb is that reserves that can cover three months’ worth of imports are adequate.
Kabambe said, in the past, the business community used to hold on to foreign currency due to uncertainty over the performance of the kwacha, adding that following the local unit’s stability over the past year, the community is releasing forex.
According to RBM, as at December 15, gross official reserves stood at $763.34 million, representing 3.7 months of imports.
The development also means that the reserves have improved by 37 percent when compared to the $581.02 million registered during the same period in 2016.
Private sector reserves stood at $431.54 million, representing 2.1 months of import as at December 15.
“Tight monetary policy and fiscal discipline are two parameters that have ensured that our official reserves should remain wherever they are. But we must also admit that there has been a lot of economic activity not just on tobacco.
“You may also recall that the World Bank,
IMF and other partners have also supported us with foreign exchange so all these have made our foreign exchange; position to be at peak,” Kabambe said.
The development defies fears that the reserves were to dwindle following the end of the tobacco selling season and the onset of the lean season.
Consequently, the kwacha has been stable against the US dollar the entire 2017.
A recent Business Confidence Index (BCI) compiled by the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) revealed that business confidence improved in 2017, to 67 percent from 58.5 percent in 2016.
“However, the BCI score of below 100 percent shows that confidence levels are low. It is desirable that the BCI score should be in excess of 100 percent from year to year.
“The expected business performance and outlook are used to estimate business confidence in the economy,” it reads in part.

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