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Import cover slips below 3 months

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Malawi’s gross official reserves slipped below the desired three months of import cover in the first week of February as demand for forex persisted, the Reserve Bank of Malawi (RBM) Financial Market Development Report for week ended February 10 has shown.

According to the report— import cover—which is the stock of foreign exchange reserves in terms of months of retained imports of goods as at end of year, dropped from $629.37 million or 3.01 months of import cover on January 27 2017 to $599.90 million or 2.87 months of imports on February 8.

This is despite the end of the lean season of December and January when Malawi most of her farm inputs such as fertiliser and chemicals.

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Analysts said the fact that reserves continued to drop in February shows that pressure continues on forex. They argue that the increased pressure on reserves could impact on the exchange rate in the medium to short term.

The kwacha has been relatively stable in recent weeks, trading at an average price of K785 to the dollar in foreign exchange bureaus.

Last week, investment management firm, Alliance Capital Limited (ACL), said it expects the kwacha, to weaken gradually but steadily this year as the economy continues to contend fiscal and current account deficits.

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It further said that the output of Malawi’s major export crop, tobacco, is expected to decline following the poor show during the last marketing season.

“However, how much will be realised from the cash crop this year will be highly dependent on how fast government will move on behalf of subsistence tobacco growers to lobby for better prices.

“With the normalisation of rainfall, we expect better output from tea, coffee and pulses. We also expect global commodities market to make a recovery. All this will help widen foreign exchange streams for the domestic economy,” said the report from Alliance Capital Limited.

Persistent narrowing of exports and a poorly performing tobacco market amplified this bias. The local unit opened 2016 at K668.54, K985.89, K43.2 to the dollar, pound and rand, respectively and steadily depreciated.

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