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Reserve Bank of Malawi clicks panic button over forex

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Betchani Tchereni

In a desperate attempt to contain pressure emanating from depleted forex reserves in the country, the Reserve Bank of Malawi (RBM) has directed that 30 percent of all foreign exchange revenue from sales of tobacco—Malawi’s main forex earner—be sold to the central bank.

RBM has since also directed that, with immediate effect, all exporters sell 30 percent of their export proceeds to it through the receiving authorised dealer banks within two working days.

The tobacco market opens this week.

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In a letter dated March 24 addressed to tobacco market operator, AHL Group, RBM Governor Wilson Banda mandates the group to be selling 30 percent of the foreign exchange generated on the tobacco auction floors to the central bank at the prevailing official exchange rate.

Banda concedes in the letter, titled ‘Mandatory Sale of Foreign Exchange Proceeds Generated on the Tobacco Auction Floors,’ that the foreign exchange market has recently experienced tightness in supply of foreign currency.

In an exchange control circular number 1/2022 which we have seen, RBM also says the moves are aimed at ensuring foreign exchange availability on the market.

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In an interview on Thursday, Banda said RBM was advocating diversified production from heavy reliance on a few agricultural commodities if the country were to address persistent forex challenges.

Forex woes have persisted for years now as there is always a widening mismatch between demand and supply mainly due to the country’s insatiable appetite for imports despite its inability to generate enough through exports.

Figures from the central bank show that, as at February 28, gross official foreign exchange reserves stood at $385.40 million, representing a 1.54 months’ worth of imports, way below the internationally recommended three months of imports.

This is also down from $502.98 million recorded as at January 31, representing 2.41 months of import cover.

In an interview on Saturday, Economics lecturer at the Malawi University of Business and Applied Science Betchani Tcheleni said the moves were aimed at containing pressure on the market.

“In this case, this is a protective measure to make sure that we can have a proper pricing of the dollar and cause no unnecessary pressure,” he said.

Financial markets commentator Alick Nyasulu feared the move by the central bank would exploit exporters.

“This will continue to exploit exporters from keeping all their earnings as RBM will be buying forex at a cheap price and resell it at higher prices. In fact, RBM is, by keeping a distorted exchange rate where the Kwacha is overvalued, simply exploiting exporters for engaging in a forex generating business,” Nyasulu said.

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