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Industry warns of forex volatility

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The Malawi Confederation of Chambers of Commerce and Industry (MCCCI), an umbrella body for industry players in the country, has projected continued volatility in forex reserves position in the short to medium terms.

The chamber says in its recently published Economic Review that, going forward, the country should expect forex reserves to decline as firms continued to import especially during the month of November.

The report, however, states that figures could slightly surge this month as most businesses close for the holidays and less cash exchanges hands.

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According to the report, from January this year, gross official reserves have been declining.

“The economy faced limited import and export of goods due to restrictions on movement of goods and, as of September, the gross reserves recorded its [sic] lowest levels in the year at K546 billion 2.63 months of import cover),” reads part of the report.

However, in October, the International Monetary Fund (IMF) disbursed funds under the Rapid Credit Facility which saw the gross reserves rise to K635 billion (3.04 months of import cover).

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In a recent interview, Reserve Bank of Malawi (RBM) spokesperson Onelie Nkuna said Malawians should not press a panic button over the forex situation in the country, saying reserves remain slightly above the internationally recommended three months worth of import cover.

She, however, conceded that the reserves position is lower this year than the same time last year.

“As you might be aware the fundamental reason for this outturn was spillover effects of the Covid-19 pandemic which led to lower- than-anticipated export earnings amidst growing demand for Covid-19- related imports. This was compounded by speculative tendencies but also seasonal increase in demand to import agricultural related materials,” she said.

This comes as the country has in recent past seen a decline in the foreign exchange supply, which has in turn put pressure on the country’s foreign exchange reserves.

Covid-19 has affected the supply of forex with figures from the central bank showing that the country imported goods worth $2 billion [about K1.5 trillion] between January and September 2020 while exporting goods worth $500 million [about K375 billion] during the same time, resulting in a trade deficit of $1.5 billion [about K1.125 trillion].

The low supply in foreign exchange in the market, exacerbated by the Covid-19 impact, is putting pressure on the local unit, the Malawi Kwacha.

“It is clear that the central bank is cautiously holding the kwacha to minimise the devastating impact of a big loss in value all at once,” says MCCCI.

As on November 30 2020, the kwacha continued to depreciate against the United States dollar closing at K765.92 from K759.47 recorded on October 30 2020.

The local currency also continued to depreciate against other major trading currencies selling at K1061.7 against the British Pound, K958.3 per kwacha against the Euro and K53 against the SA rand.

Malawi’s dream of turning into a manufacturing and exporting nation from a predominantly consuming and importing country seems far from being attained.

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