Malawi’s import cover—the number of months of imports that can be covered with foreign exchange reserves available with the central bank—deteriorated to $143.60 million, representing 0.57 months in February, figures from the Reserve Bank of Malawi (RBM) show.
This is the lowest level since August 2012, when an IMF Country Report No. 12/221 stated that the import cover dwindled to an abysmal 0.5 months.
A Financial Market Developments report published by the central bank on Tuesday indicates that the import cover has been on a downward spiral since December 2023, when it was recorded at 0.97 months ($242.98 million) before falling to 0.71 months ($178.06 million) in January.
The figures further show that Malawi’s import cover has been hovering below one month of imports since August 2023.
In the past 12 months, the highest foreign exchange reserves recorded were in June 2023 at $321.53 million or 1.29 months of imports.
However, the report shows that private sector reserves stood at $396.72 million or 1.59 months of imports.
In an interview, Financial Market Dealers Association President Leslie Fatch said the underlying factor is the continued pressure on the currency due to the backlog of import bills coupled with limited forex supply.
“We anticipate the opening of the tobacco market to provide some temporary relief. In the long run, we anticipate current demand to be subdued due to the impact of monetary policy interventions implemented by RBM, hence forex demand may also decrease.
“We would still have to work on a long-term solution to address supply mechanics as the monetary policy interventions implemented lean towards addressing the demand side,” Fatch said.
Economics Association of Malawi (Ecama) acting President Bertha Chikadza said the development reflects the fact that forex challenges facing the country remain unresolved.
“Expect the problems to ease as the tobacco season opens and hope the forex realised from the sales could make a difference. However, longer term, Ecama has always emphasised that we need to deal with structural challenges and encourage production, value addition, and be aggressive in promoting locally produced goods at international markets,” Chikadza said.
Economist Marvin Banda said the development comes as a surprise and drains hope from many at a time Malawi was meant to be turning the corner.
He said what has dampened the hope is a reminder that, in May 2012, the Kwacha had devalued by 33 percent whereas in November 2023 it was devalued by 44 percent.
“The demand side of the equation has to be considered,” Banda said.
In a recent interview, RBM Director for Economic Policy and Research Kisu Simwaka acknowledged that it has been difficult for the economy to generate enough foreign exchange reserves.
He, however, expressed optimism for a pick-up in the reserves.
“Gross official reserves have been low and it is understandable, looking at what we have passed through as an economy. We have passed through multiple shocks since 2020. The Kwacha will continue to stabilise, inflation will come down and that will be good for the economy to recover and grow,” Simwaka said.
