The Ministry of Finance has gazetted the Exchange Control (Repatriation and Export Proceeds and Operations of Foreign Currency Denominated Accounts) Regulations of 2022 that are expected to bring sanity in the foreign currency market.
This comes as Malawi continues to grapple with foreign exchange shortages,
The law was gazzetted on May 27 by Minister of Finance Sosten Gwengwe.
According to the law, authorised dealer banks shall be allowed to open foreign currency denominated accounts for exporters of goods, services and other customers receiving foreign exchange on a regular basis.
The law further stipulates that export proceeds or foreign exchange accrued to residents of Malawi shall be received in Malawi within 120 days from the date of exportation and be repatriated to Malawi and disposed of in accordance with the regulations.
“A person who has received export proceeds or foreign currency in accordance with these regulations shall, within two working days after the date he is informed about the receipt of the export proceeds, be required to sell 30 percent of the export proceeds or foreign currency to the bank (RBM) through the receiving authorised dealer bank,” the regulations read.
It adds that the aim of the regulation is to help address the scarcity of foreign exchange and anyone found contravening the law shall face the long arm of the law.
“The objectives of these regulations are to guide operations of foreign currency denominated accounts, increase the circulation of scarce foreign currency resources in the Malawi economy and ensure timely repatriation of all export proceeds to Malawi,” the law adds.
Meanwhile, Bankers Association of Malawi (Bam) has indicated that the exchange rate policy stance by the government will shrink the industry by increasing the rate of non-performing loans, among other things.
Among other things, the Act under section 7(2) holds that a person who has received export proceeds or foreign currency in accordance with the Regulations shall, within two working days after the date he is informed about the receipt of the export proceeds, be required to sell thirty percent of the export proceeds or foreign currency to RBM, through ADBs.
In an interview, Bam President Macfussy Kawawa said the idea is positive to the extent that some forex is forcibly released from the initial recipient’s account to a potentially wider circulation.
However, he said the option to have 30 percent of the generated forex going to RBM means the circulation would be limited.
“…this will result in limited forex circulation amongst the ADBs. For certain categories of customers who borrow in forex such as small tobacco farmers, surrender of the 30 percent of their forex earnings to RBM may mean shortfall on loan obligations which will mean bad debts, carryover of loans to next season, among other things.
“This is likely to lead to reduced banks’ appetite to lend to such category of customers. Other unintended consequences may be that exporters may be tempted to find ways of manipulating the earnings,” Kawawa said.
A recent statement published by the RBM and signed by its governor Wilson Banda indicated that the measures were employed in response to the foreign exchange liquidity challenges and that they are only short-term measures.