Import cover eases in first half
Gross foreign exchange reserves — a combination of official and private sector reserves— was reportedly on a downward spiral for a greater part of the first half of 2021, seen at 1.70 months worth of imports as at June.
This is way below the internationally recommended 3.0 months worth of imports.
According to figures from Reserve Bank of Malawi (RBM), as quoted by Nico Asset Managers in its mid-year review, the official forex reserves for June 2021 decreased to $424.99 million from $574.26 million in December 2020 (or 2.75 months of imports).
The report further indicates that the local unit, the Kwacha, depreciated against all major currencies and closed the period at K805.59 against the United States dollar from K770.84 against the dollar in December 2020.
However, this is ironic as it happens at the peak of the selling season for commodities such as tobacco, Malawi’s major foreign exchange earner.
Financial Market Dealers Association of Malawi President McLewen Sikwese said the three months recommended period will be hard to reach in the short term following the rebasing of a monthly requirement from $209 million to $250 million.
“This means, in nominal terms, the country needs to raise $306.75 million to attain three-month import cover relative to $183.75 million at the historical monthly requirement of $209 million and proceeds of the tobacco season will not be enough to plug the hole,” he said.
The central bank recently said it has devised many strategies to bring import cover back to shape including receiving some inflows from the International Monetary Fund in form of SDR allocation.
Since the opening of the tobacco marketing season, according to the RBM, some foreign exchange has been trickling into the market, though not as much as in the past years due to some unfavourable marketing environment (kg).
As of Friday last week, tobacco raked in about $183.7 million from sales of about 112.7 million kilogrammes.
This is a rise from last year’s $152 million of revenue from 99.9 million kg of tobacco sales.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.