By Benadetta Chiwanda Mia:
The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has expressed dismay over the government’s recently introduced foreign exchange regulations, fearing adverse effects on the private sector’s access to forex.
In December 2024, the government implemented a foreign exchange control regulation that requires public institutions to convert 80 percent of their foreign currency reserves into the local currency at the Reserve Bank of Malawi (RBM).
Additionally, the regulation mandates banks to liquidate their foreign reserves within 48 hours and limits non-governmental organisations to holding less than 70 percent of their foreign currency.
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In a position paper, the chamber highlights the findings of the 2024 Malawi Business Climate Survey, which scored forex scarcity and exchange rate volatility as significant challenges, with a severity rating of 9.43 out of 10.
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The paper notes that, alongside the requirement for exporters to sell 30 percent of their export proceeds, the new Foreign Exchange Control (2024) regulation could inadvertently lead to a decline in exports and reduced foreign currency inflows.
“The principles being promoted contradict policies of a market economy and would likely increase the perception of instability in the policy regime and discourage investments,” the paper states.
The chamber argues that while the measures aim to curb illegal forex trading, they fail to adequately address how businesses will access forex once it is routed to RBM.
MCCCI believes that the existing 2022 regulations regarding the repatriation of export proceeds and operations of foreign currency accounts are sufficient to control illegal forex activities and that efforts should focus on ensuring compliance.
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It warns that the new regulations might encourage hedging activities and parallel trading, leading to increased parallel rates, escalating production costs and heightened price volatility for essential goods and services.
The chamber has since urged the government to maintain the RBM’s role as a regulator while allowing commercial banks to operate efficiently, ensuring that available forex is directed toward productive sectors.
RBM spokesperson Mark Lungu said the essence remained ensuring order on the market and discipline across all sectors.
“The foreign exchange measures have come into place because of rampant malpractices by a number of players. Authorities are holding a number of consultations with stakeholders and, once these consultations are concluded, where necessary, adjustments might be made without necessarily compromising the issue of instilling discipline in the market,” Lungu said.
Economics Association of Malawi (Ecama) President Bertha Bangara Chikadza noted that while the government’s measures might improve forex availability for strategic imports, they could also reduce foreign currency available in banks, subsequently affecting businesses and other economic activities by discouraging investment.
“However, given the country’s high appetite for imports amid persistent foreign exchange shortages, Ecama believes that this decision is necessary to curb excessive foreign exchange demand, which is sometimes used for non-essential and luxury items,” Chikadza said.
She urged the government and RBM to ensure forex availability for businesses and production sectors, to boost output, increase exports and enhance foreign currency inflows.
“Consultations between the government and stakeholders within the private sector are also key to ensuring that policy decisions do not negatively affect business operations within the private sector,” she said.
