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Forex reserves drop by 21 percent in 2022

SHRINKING—Gross Official Reserves

FATCH—There are no quick fixes

Malawi’s gross foreign exchange reserves dropped by 21 percent between December 2021 and November 2022, a report from Bridgepath Capital has revealed.

The report indicates that by December 2021, foreign exchange reserves were at $429 million but went down by 21 percent to $339 million by November last year.

It adds that the development represented an import cover of 1.36 months by November last year, down from 1.72 months in December in 2021.

“The total forex reserves import cover (both government and private sector) in November 2022 was 2.96 months from an import cover of 3.42 months in December 2021. The import cover was below the required threshold of 3 months for November 2022,” the report reads.

Acute shortage of forex affected most sectors of the economy last year.

As a result, the local unit, the kwacha, remained volatile during a greater part of the year and was devalued by 25 percent in May.

For example, the kwacha is estimated to have depreciated by 26 percent against the United States Dollar as of December last year, trading at over K1034.

“The devaluation followed prior failed attempts at trying to control the forex challenges through measures such as continuous intervention in the forex market and an introduction of a mandatory sale of 30 percent export earnings to the RBM,” the Bridgepath Capital report adds.

Financial Market Dealers Association (Fimda) has since painted a gloomy picture going forward.

Fimda President Leslie Fatch said there are no quick remedies to the forex woes.

“There are no quick fixes to this problem apart from working on strategies that will ensure supply in the long run or if the government puts in policies that directly control the movement of kwacha otherwise we will continue seeing depreciation and this year it may be steep,” Fatch said.

Economists and development partners have advised the government to ensure enhanced production for export markets while cutting appetite for imports.

Malawi remains an agrarian economy, with raw export commodities like tobacco still major forex earners. It also largely banks on development partners.

Malawi’s annual imports bill stands at $3 billion against a $1 billion exports bill.

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