The Reserve Bank of Malawi has put to rest fears that the country could wake up to shocks of depleted foreign exchange reserves in coming months, stressing that there are strategies being employed to maintain the reserves stocked.
A weekly financial market developments report published by the central bank on Friday indicates that gross official foreign exchange reserves increased by $5.1 million to close the week at $416.9 million.
The amount represents 1.67 months of imports. The report further says the development was a partial recovery from the $36.4 million drop recorded during the preceding week.
“Activity in the foreign exchange retail market picked up considering the levels typically observed during the lean season. authorised dealer banks (ADBs) purchased a total of $32.98 million from their customers compared to $37.11 million recorded during the preceding week.
“On the demand side, ADBs sold a total of $29.26 million compared to $37.22 million recorded during the preceding week,” the report reads.
However, economic commentators have maintained that the reserves are too low to sustain the economy.
In an emailed response to aquestionnaire, economist Sane Zuka said the 1.67 months import cover that the country has at the moment is not a good situation but was expected with the on-going agriculture inputs imports.
“We, as a country, have failed to quickly build the necessary capacity to increase exports. One quick solution is to make deliberate steps to cut on unnecessary imports. The medium solution is for the government to support export oriented anchor industries.
“My quick suggestion is that Malawi Development Corporation should be re-engaged to support capacity development of export-oriented agro-based industries. The Ministry of Trade can work on something to support this initiative. I believe, with this direction, we can beat dependence on donors,” Zuka said.
In a separate interview, Director for Centre for Research and Consultancy Milward Tobiasi added that the situation was scary and it meant the exchange rate will continue weakening thereby fuelling rise in domestic prices.
“I suggest government through RBM should suspend approvals of application for foreign exchange on imports considered non-essential and which are domestically produced. Government should also reach out to development banks for short-term loans.
“Also some time-specific incentives on remittance may help beef up foreign exchange inflows though not as much, given the fact that majority of our diaspora are low income earners and often use informal channels of sending money,” Tobiasi said.
“In the medium to long-term, the national budget should harness import substitution and export growth by financing projects that speak to those objectives,” he added
When asked to share the government’s plans to the check the situation, Minister of Finance Felix Mlusu referred us to the RBM.
“The issues are to do with monetary policy, could I suggest that you put them to the governor of the central bank.
“Forex shortage is real. Our private sector is not exporting enough. So there is currently reliance on donor inflows through project financing and other off budget funding and budget support, which is limited to dedicated programmes. However, there are arrangements with regional creditors that will help ensure that importation of strategic commodities like fuel, drugs, fertiliser should not be disrupted,” Mlusu said.
RBM spokesperson Ralph Tseka played down the fears, saying the authorities are always looking for other sources of foreign exchange.
“Right now there is a high drive in mining, which is a source of foreign exchange. Another source is commodity exports to South Sudan; they will be making payments anytime soon and you have also heard that RBM has established a structured market for gold.
“We have been buying gold and we have accumulated enough stock now that we want to have processed and later on sell outside to earn foreign exchange. Those are the sources that we are exploring,” Tseka said.
The country’s foreign exchange reserves have been on a decline since December 2019 before a slight pickup in September 2021.