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Forex situation remains shaky

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Ralph Tseka

Gross forex reserves for Malawi shrunk from $605 million in August 2022 to $326 million by October 2022, the latest Word Bank Malawi Economic Monitor (Mem) shows.

The World Bank indicates that the latter amount is equal to 1.3 months of import cover.

According to the report, the reserves have mainly been supported by swaps and medium-term borrowing facilities at non-concessional terms.

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The report further indicates that following a 25 percent devaluation of the Kwacha in May, the spread between the official and market exchange rates has widened while foreign reserves remaine low.

It further says divergence between the official rate and foreign exchange bureaux cash rates has reemerged and grown up to 46 percent by mid-November, surpassing the pre-devaluation level of late May.

“Net reserves have been negative over the past year, and gross reserves have been mainly supported by swaps and medium-term borrowing facilities at non-concessional terms,” the report reads.

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The World Bank has also said there is a worsening balance-off-payments crisis leading to an acute foreign exchange shortage, affecting producers that import inputs, and causing shortages of fuel and other essential goods.

The effects on the retail fuel sector are only the most visible symptom of much wider challenges.

“The latest World Bank Business Pulse Survey found that, in October 2022, two-thirds of businesses reported a decrease in sales compared with one year earlier and more than three-quarters of businesses consider the unavailability of foreign exchange as a threat to profitability.

“In addition, there are reports of organisations that import essential commodities, such as the Central Medical Stores Trust, facing shortages of medical supplies,” the report explains.

RBM spokesperson Ralph Tseka said the figures are a true reflection, adding that the country has, indeed, been depending on swaps and non-concessional deals because only the World Bank and African Development Bank provide concessional loans.

He said it is true that the reserves were being boosted through swaps that started maturing last year.

“They [figures] are a true reflection; there is nothing to hide there. The swaps came mainly from the Afrexim Bank,” Tseka said.

Economic expert Betchani Tchereni said the situation might be more dire than reported because data in the World Bank were collected some months back.

Tchereni said Malawi remains a predominantly importing nation with an import bill, $3.4 billion per year but manages to get $1 billion, causing a deficit $2.4 billion.

“Where we do not have any dollar to cover for that import bill, it means it is a problem to us because survival is based on availability of foreign exchange,” he said.

The economic expert added that World Bank commitment to support the budget, and international community support to the Ministry of Health in fighting cholera, might minimise forex shortage.

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