Forex reserve position seen narrowing further
Official gross foreign exchange reserves dropped to $279.22 million as of January 31 2023, a drop by eight percent from the preceding month.
This is according to figures contained in a February 2023 Monthly Economic Report by financial advisory firm Bridgepath Capital Limited released Wednesday.
According to the report, as at December 31 2022, the reserves stood at $304.65 million.
The report adds that gross reserves for January 2023 were an equivalent of about 1.12 months’ worth of imports, an 8 percent decrease from 1.22 months for December 2022.
It further says combined (government and private sector combined), foreign exchange reserves held in the country in January 2023 were $663.59 million, a six percent decrease from $703.85 million in December 2022.
“In January 2023, the import cover for gross official foreign exchange reserves remained below the required threshold of three months.
The total foreign exchange reserves import cover decreased to 2.66 months in January 2023, from 2.82 months in December 2022,” the report reads.
A drop in foreign exchange reserves negatively impacts the performance of the local currency, which results in its depreciation.
Consequently, month-on-month, the Kwacha marginally depreciated against the United States Dollar as it traded at K1,033.69 against the dollar as of February 28 2023 from K1,031.87 per dollar as of January 31 2023.
Delivering the national budget in Parliament on Thursday last week, Minister of Finance and Economic Affairs Sosten Gwengwe admitted that foreign exchange reserves remain remarkably low as the need for imports far outpaces that for exports.
“To boost the foreign exchange reserves, the RBM implemented a surrender requirement of 30 percent of exports and, in May 2022, devalued the Kwacha.
“Let me assure the House that gross official reserves are expected to recover to above three months of import over the medium term,” he added.
Malawi needs $3 billion for a 12 months import cover but its exports generate $1 billion only per year.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.