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Imports appetite threat to forex

Tobacco

Betchani Tchereni

Pressure emanating from existing imbalances of forex supply and demand has persisted in the country in recent years, straining other key macroeconomic fundamentals.

The mismatches have been prevalent on the market, evidenced by continued low foreign exchange supply, declining official foreign reserves and widening spread of foreign exchange rates, a condition which forced the Reserve Bank of Malawi (RBM) to, among other things, devalue the local unit, the Kwacha, by 25 percent last month.

This has continued to pile pressure on commodity prices in Malawi, a net importing nation, with inflation seen at 14.7 percent in May 2022.

Import-exports mismatches

Malawi continues importing more than it exports, a situation experts fear would continue to exerting pressure.

For starters, figures from Trade and Law Centre (Tralac) show that the country exported $269 million (K277.3 billion) worth of goods compared to imports valued at $934 million (about K963.9 billion) in 2020 within the region.

Overall, the countrys merchandise trade balance worsened from K520 billion in 2016 to K797 billion in 2021, with imports jumping from K1.02 trillion in 2016 to about K2.06 trillion in 2021.

During the same period, exports jumped from K64.8 billion in 2016 to about K1.26 trillion in 2021.

Ironically, Malawi’s import bill stands at above $2.5 billion or $210 million per month with main imports including fuel, fertiliser and medicines.

In a recent interview, Reserve Bank of Malawi (RBM) Governor Wilson Banda lamented rising import bill, saying the situation continues to pile pressure on the forex situation.

Figures he provided show that, for instance, the country was spending about $1 million (about K816.3 million) worth of fuel per day.

For example, importation of fuel through Nocma [National Oil Company] is probably supported RBM 100 percent while importation of fuel through PIL [Petroleum Importers Limited], even though has been done through it commercial banks, has also been leaning on the Reserve Bank to provide that fuel.

Importation of fertiliser is landed on the door steps of the central bank. Importation of medicine is also coming to us. In normal terms, that is the responsibility of commercial banks, Banda said.

Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni believes import substituon remains the remedy.

In an interview on Monday, Tcheleni said, to attain the mark, the country should tame its insatiable appetite for imports while diversifying its export production base.

There are some imports which we do not need to spend our foreign exchange on, but use locally available resources and import only that which we cannot live without. Apart from that we need to make sure our manufacturing sector is ticking,” he said.

The sleeping giant in agriculture sector

The country’s export base is highly dominated by raw agricultural products, with tobacco, sugar and coffee accounting for over 70 percent.

Last year, Malawi’s main forex earner, tobacco, raked in about $179 million, which falls short of the $210 million monthly import bill.

Exports from sugar were seen at $97 million while tea raked in $83.6 million in the year.

Experts feel Malawi’s obsession with exporting raw materials has proven detrimental as the commodities fail to attract an extra value, thereby having squeezed revenue.

But Minister of Agriculture Lobin Lowe insists that, despite the status quo, the sector remain essential in propelling economic growth.

Speaking when opening the Mzuzu Auction Floors, Lowe said commercialisation of the sector remains a remedy as it will propel import substitution process.

Where does the other forex come from?

Development partners have remained key in supporting the country’s forex situation.

When presenting the 2022-23 National Budget Statement, Minister of Finance Sosten Gwengwe said grants were estimated at K320.3 billion (about $320 million) representing 2.8 percent of GDP.

Gwengwe added that these grants comprise K278.4 billion ($278 million under the current exchange rate) from international organisations and K41.9 billion from foreign governments in form of dedicated and project grants.

Economists and development partners have advised government to make sure that the economy is diverse and moves to depending highly on other sources of exports such as mining and manufacturing.

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