Forex shortages persist

By Chimwemwe Mangazi:

A snap survey by Times Business has established that there is continued short supply of foreign exchange especially the dollar in Authorized Dealer Banks (ADBs) and forex bureaus in the country’s major cities.

The development has also affected private sector players who can attest to a marginal to no change in foreign exchange supply in recent months.

Among other things, we have noted there is continued mismatches between the official rate by the Reserve Bank of Malawi (RBM) at K1,700 to a dollar and ADBs offering a dollar at K1900.

The Kwacha to dollar rate is also misaligned to the black-market rate which is currently at K2,200.

This comes against a background of huge expectations of stability in supply of foreign exchange by November 2023 on the back of the International Monetary Fund’s Extended Credit Facility (ECF) approval.

However, President of the Financial Market Dealers Association (Fimda) Leslie Fatch said the situation has not changed substantially considering the backlog on forex demand that was there as evidenced in the gross official reserves and statistics on the foreign currency reserves in the commercial.

“We must admit though that the situation is not as dire as it was before especially with reduced speculation from the importers. We have noted a positive sentiment that has followed the approval of the ECF with many development partners, notably the World Bank announcing a number of interventions in the economy.

“However, that the impact of such a programme is not short term, especially if economic issues affecting the supply side have not been addressed. In the long run, we anticipate the demand to fall once the backlog has been cleared, and more importantly, current demand to subdue due to the monetary policy decisions implemented by the Central Bank such as Policy rate hikes and the devaluation which have affected the spending ability of the masses, thereby reducing aggregate demand,” Fatch said.

President of the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Lekani Katandula said there has been a very modest improvement in supply as most of the inflows have gone to imports of fertiliser and fuel.

“…we nonetheless remain hopeful that we will see more improvement in the coming months as more budget support injections come through,” Katandula said.

In a separate interview, Chairperson of the National Association of Small and Medium Enterprises (Nasme) William Mwale said there is reasonable improvement because there is an increase in imports.

“Lots of tracks bringing various materials for manufacturing industries, construction materials such as steel, cement clinker and several other food and beverage items. Most shops are fully stocked, and cars and tracks are on normally moving between countries. Fuel is readily available, it’s not an ideal situation but the economy is likely to be buoyant,” Mwale said.

In an interview, RBM’s Director Economic Policy and Research Kisu Simwaka argued that the Kwacha is not misaligned.

He further said it has been difficult for the economy to generate enough foreign exchange reserves but they believe that once the economy stabilises and economic activity starts picking up, the recovery process strengthens, reserves will be able to build up.

“There will always be some element of misalignment that can be tolerated. At the moment, when you look at where the bureaus are, where the parallel market is and where the official is, we believe that the spread is reasonable and therefore it is something that we can tolerate. We are not concerned. We think that the Kwacha has stabilised.

“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.

“We are roughly around one month of import cover; we desire to build our reserves towards three months of import cover because those are the kind of reserves that can support the economy to grow sustainably.

We are hopeful that we will get there, but at the moment we are struggling given the hostile economic environment that we have been passing through, but recovery has begun certainly and we should be able to get to three months import cover soon,” Simwaka said.