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Forex reserves pick up in October

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By Justin Mkweu 

Malawi’s gross foreign exchange reserves — a combination of official and private sector reserves—went up to $624.6 million in October from $533.4 million recorded in the preceding month, latest figures from the Reserve Bank of Malawi (RBM) show.

The reserves stood at 3.0 months worth of imports, which is within the internationally recommended band, up from 2.6 months worth of imports by end of September.

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In its October Economic Review, the central bank attributed the rise in the forex reserves position to disbursement of funds under the International Monitory Fund (IMF)’s Rapid Credit Facility (RCF), among other factors.

“The increase in reserves in October reflected receipt of the second disbursement by the IMF under Rapid Credit Facility (RCF) as well as budgetary support to address critical spending needs in respect of the Covid-19 pandemic,” reads the review in part.

Meanwhile, IMF Country Representative Farai Guenamo has indicated that the fund is yet to conduct a fresh assessment of the macroeconomic situation for consideration of another RCF disbursement.

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In the statement, RBM further says amid the fund inflow, which was meant to help towards stabilising the Kwacha, the local unit continued to depreciate against other trading currencies. For example, the Kwacha lost 0.3 percent against the US dollar, which traded at K759.47 per as at the end of October 2020.

The Kwacha also depreciated by about 1.5 percent against the British Pound Sterling, as it traded at K1,015.11. In the recent past, the country has seen volatility in foreign exchange supply which has in turn put pressure on the country’s foreign exchange reserves.

This is almost a norm especially during the lean period when the country imports more commodities than any other time of the year while the level of imports dwindles as market for the country’s top export crop, tobacco, closes. Malawi needs about $210 million a month to finance the import of essential commodities such as fuel, drugs, farm inputs and other luxuries.

The Polytechnic acting Vice Chancellor Betchani Tcheleni said the Kwacha depreciation should be a concern. He indicated that, in this period, the country exports fewer goods compared to imports and, as borders have re-opened for smooth trading among countries, demand for forex would surge.

“If there is going to be no alternative for us to obtain the foreign currency, the Kwacha may continue to depreciate but where the import appetite has been curbed, the export activity has increased and more international partners have come in, the Kwacha may be stable,” Tcheleni said.

Malawi remains an agrarian economy with tobacco still the top export crop. Although the leaf fetched better prices this season than last year, the country sold 112.89 million kilogrammes (kg) of tobacco this year compared to 165.67 million kg sold in 2019, realising $173.5 million.

Malawi’s dream of turning into a manufacturing and exporting nation from a predominantly consuming and importing country seems far from being attained.

Currently, Malawi is importing high volumes of fertiliser and seeds under the K158.3 billion Affordable Input Programme where 213,800 metric tonnes of NPK and 213,800 metric tonnes of Urea are to be imported.

The country continues to experience negative trade balance with petroleum products, automobiles, fertilizer and medicines topping the imports list. Tobacco, tea, sugar, oil cake and soya beans remain among export products, and most are ferried outside the country in their raw form.

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