By Benadetta Chiwanda Mia:
Amid growing fears of possible adverse effects of the government’s recently introduced foreign exchange regulations to the economy, authorities feel the situation remains under control.
In December 2024, the government implemented a foreign exchange control regulation requiring public institutions to convert 80 percent of their foreign currency reserves into the local currency at the Reserve Bank of Malawi (RBM).
Additionally, the regulation mandates banks to liquidate their foreign reserves within 48 hours and limits non-governmental organisations to holding less than 70 percent of their foreign currency.
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In a position paper last week, the private sector umbrella body, the Malawi Confederation of Chambers of Commerce and Industry called on the government to rethink the control measures, saying they risk affecting production and propelling the parallel market proliferating.
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The chamber highlights the findings of the 2024 Malawi Business Climate Survey, which scored forex scarcity and exchange rate volatility as significant challenges, with a severity rating of 9.43 out of 10.
But both the Treasury and the RBM say the moves are aimed at bringing sanity to the market.
In an interview Thursday, Secretary to the Treasury Betchani Tcheleni said the measures taken are meant to enhance forex availability, noting that some earlier positive effects have been observed, albeit modestly.
“We cannot definitively assess the impact yet, but there has been some improvement in making strategic commodities available, particularly fuel, fertilizers, and medications.”
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However, Tcheleni acknowledged that with the current measures, commercial banks are largely leaving forex transactions to the Reserve Bank, limiting their full participation in the market.
“This dynamic may create a cosmetic scarcity, breeding speculation, which mainly benefits the informal sector which flourishes on such speculations. But at the end of it all we need to prioritise being realistic about our financial situation and what we possess,” he said.
Speaking earlier this week, RBM Director of Economic Policy and Research Mark Lungu, who is the central bank’s immediate past spokesperson said the primary goal of the new regulations was not to boost official forex reserves but rather to address rampant market malpractices.
“While it is still early to conduct a meaningful assessment, we believe that fruitful results will be achieved. The major concern is the proliferation of the parallel market which distorts pricing of foreign exchange which usually is based on speculative tendencies and not driven by fundamentals on the ground,” Lungu said.
Economics Association of Malawi President, Bertha Chikadza said the current situation necessitated a rejig approach.
