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Forex reserves drop to 1.8 months in first quarter

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Malawi’s gross foreign exchange reserves—a combination of official and private sector reserves—drastically reduced in the first quarter of 2021, seen at $394.28 million (1.89 months of imports) by April 21, the Reserve Bank of Malawi (RBM) Monitory Policy Committee report shows.

According to the report, official reserves fell to $410.16 million (1.96 months of imports) as of end-March 2021 from $483.38 million (2.31 months of imports) registered at the end of February 2021.

The reserves were coming from $502.98 million (2.41 months of imports) as of end- January 2021, compared to $574.26 million (2.75 months of imports) recorded at the end of the fourth quarter of 2020.

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The report attributes the drop to seasonality of the local economy but adds that it was further worsened by the Covid pandemic.

“Foreign exchange reserves continue to be lower than the pre-Covid pandemic levels and it was exacerbated by the negative impact of the pandemic on domestic foreign exchange reserves accumulation,” the report reads.

Economist from the Malawi University of Business and Applied Sciences Betcheni Tchereni said in an interview that the country feels safe when it is at or above three months but 1.89 months should be worrisome.

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Tchereni fears that the reduction in import cover affects the stability of the local currency which, if it depreciates, is inflationary and affects the economy in many ways.

“The country should expect the situation to improve with the opening of agricultural markets and also knowing that, after this meeting of Parliament, we are expecting some inflows of foreign currency especially from development partners,” he added.

Malawi’s import cover is seasonal, picking up when agricultural markets are open and reducing during the lean period.

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