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Dealers question Reserve Bank of Malawi’s rationale

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Betchani Tchereni

Financial market dealers have questioned the Reserve Bank of Malawi (RBM)’s stance to have 30 percent of forex generated from tobacco sales sold to it, saying the option does not address prevailing foreign exchange challenges.

Last week, the central bank directed that 30 percent of all foreign exchange revenue from sales of tobacco— Malawi’s main forex earner—be sold to the central bank.

RBM has also directed that with immediate effect, all exporters sell 30 percent of their export proceeds to it through receiving authorised dealer banks within two working days.

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But the Financial Market Dealers Association (Fimda), an umbrella body for dealers in forex exchange, money market, fixed income and equity instruments in the country, argues that the move would not address forex shortages in the country.

Reacting Monday, Fimda President Mclewen Sikwese said the option was just shifting handlers of the available, but limited, forex on the market

“The key consideration is that these actions do not entail generation of new foreign exchange resources; rather, it is just a shift in the entities that are going to be in control of these resources from authorised dealer banks to the central bank,” he said.

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Sikwese, however, hinted at the impact of the move, saying it would largely be dependent on what use the central bank is going to put the foreign exchange to.

He said if the resources shifting to the central bank are dedicated towards foreign payment for entities that the market was already allocating the foreign currency to, then the impact is neutral with just a mere change in the agent effecting the payments from authorised dealer banks to the central bank.

“However, if the resources are allocated towards obligations that are exclusively under the central bank then there will be a drain on the level of foreign exchange to be accessed on the market,” he said.

Forex woes have persisted for years now as there is always a widening mismatch between demand and supply mainly due to the country’s insatiable appetite for imports despite its inability to generate enough through exports.

Figures from the central bank show that, as at February 28, gross official foreign exchange reserves stood at $385.40 million, representing a 1.54 months’ worth of imports, way below the internationally recommended three months of imports.

This is also down from $502.98 million recorded as at January 31, representing 2.41 months of import cover.

Sikwese said import substitution remains critical in arresting the escalating demand for foreign exchange considering the country’s appetite for imports and lack of domestic productive capacity.

“There is no short cut to getting out of the foreign exchange fix. Measures looking to address both the demand and supply side of foreign exchange need to be adopted.

“Diversifying and strengthening the export base beyond what we have traditionally produced for years. These commodities are on high demand on the international market and we have capacity to produce. We need to get into that,” he said.

In an earlier interview, economics lecturer at the Malawi University of Business and Applied Science Betchani Tcheleni, argued that the move by the central bank was aimed at containing pressure on the market.

“In this case this is a protective measure to make sure that we can have a proper pricing of the dollar and cause no unnecessary pressure,” he said.

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