Reserve Bank of Malawi (RBM) Governor Wilson Banda has said Malawi has performed favourably on replenishing the foreign exchange reserves purse despite gross official reserves remaining below one month cover.
This is one of the conditions that Lilongwe must meet to satisfy the current Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF).
This is coming against a recent ECF review whose outcome is yet to be publicised by the Bretton Woods institution.
Last month, an IMF mission that visited the country for the ECF review left without concluding the review, indicating that it would continue engaging the authorities in Malawi on outstanding issues in the coming weeks.
But a month down the line, the two parties are yet to reach a common ground to complete the first review.
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In an interview on Monday, Banda reiterated that the economy is coming from a period where demand for forex was high and supply was low, and the discrepancy between the two resulted in the depletion of foreign reserves, which are now building up.
“You know we’ve got a programme with the fund, and one of the targets in that programme is that we should build on net foreign, on net international reserves. We are achieving that. So, I’m saying that in terms of net foreign assets, we’re doing well.
“That should in itself indicate that the exchange rate should not be under pressure, what you are seeing is a result of perceptions in the black market. I think those of us in the Central Bank look at it as being driven purely by speculation rather than the facts on the ground,” Banda said.
He added: “Black market is essentially a market for speculators, or those that don’t want to operate in the formal sector. If you are looking at the supply of foreign currency in the market, this time around, it’s much, much better than it has been since the beginning of the year.
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“You know tobacco is doing very well this year. It’s brought in a lot of foreign currency. Our import cover as the central bank is weighing up. It’s really weighing up. We’re seeing that benefit. We’re still under one month, but it is picking up.”
However, pressure continues to mount on the Kwacha, as it is now trading at K2, 500 to the dollar on the parallel market. This is despite the dollar trading at the official rate of K1, 751 in high street banks.
The development means that the gap between the official and parallel forex market has grown to a whooping K750.
In a statement at the end of the mission on May 23, IMF Mission Chief for Malawi Mika Saito said the Malawian authorities and the IMF team made substantial progress in discussions on the policies and reforms needed for the completion of the first review of the ECF-supported programme.
According to Saito, the two sides reached a common understanding on efforts needed to return to a sustainable fiscal adjustment path, rebuild external buffers and restore debt sustainability. We also have a clear roadmap towards the completion of the review.
“Weather-related shocks continue to impact the Malawian economy, exacerbating food insecurity.
“The economic outlook for 2024 remains positive but economic growth is now projected at two percent, reflecting the impact of El Nino on agriculture production and spillovers to the rest of the economy. A successful winter crop would cushion the impact of drought on the agriculture sector,” Saito said.
