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‘Import cover to remain volatile’

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The Financial Markets Dealers Association (Fimda) has said gross foreign exchange reserves—a combination of official and private sector reserves—could remain volatile in the coming months despite projected improved agricultural output this year.

Fimda President Client Mclewen said the forex reserves position could remain below 3 months worth of imports in the foreseeable future due to continued imbalances between foreign exchange demand and supply in the economy.

He said the incoming farming season will still exert pressure on the limited foreign exchange reserves, thus straining the position further.

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“The rebasing of the monthly requirement from $209 million to $250 million means in nominal terms the country need 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 the proceeds from tobacco season will not be enough to plug the hole,” he said.

Constrained availability of foreign exchange also has a bearing on the performance of the Kwacha.

Reserve Bank of Malawi (RBM) spokesperson Onelie Nkuna said since the opening of the tobacco marketing season, some foreign exchange has been trickling in the market, though not as much as expected.

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She said the central bank, in collaboration with the government had embarked on a number of initiatives to address foreign exchange supply gaps in the short to medium terms while looking at longer term strategies for sustainable foreign exchange supply in the country.

“In the short term, the bank is expected to receive some inflows from the IMF in form of SDR allocation. As you might be aware, the IMF is discussing on a new allocation of SDRs to all its member countries including Malawi amounting to $650 billion, to support the global recovery from the Covid crisis.

Malawi is a predominantly importing and consuming nation.

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