The Reserve Bank of Malawi (RBM) has reintroduced the mandatory sale of export proceeds kept at exporter’s Foreign Exchange Denominated Accounts (FCDAs) to local Authorised Dealer Banks (ADB), a move which aims at addressing foreign exchange shortages in the country.
The system started in 1994, when exporters were returning 90 percent of proceeds kept in their FCDAs but was later abolished in 2015.
According to a press statement from the central bank, the system has been
re-introduced with immediate effect “after noting tightness in the foreign exchange market”.
It says exporters shall sell a minimum of 30 percent of their export proceeds.
The statement, signed by RBM Governor Wilson Banda, says all exporters are immediately required to liquidate 30 percent of what is currently in their FCDA by selling the foreign exchange to any ADB.
“Exporters are at liberty to sell the foreign exchange to any ADB, offering a better exchange rate, other than the ADB which received the export proceeds. This sale should be done within two days from the date of receipt of the proceeds,” reads the statement.
For the past months, Malawi’s foreign exchange reserves position has been volatile, affecting footing of the local unit, the Kwacha, which has been losing value lately.
For instance, until June this year, foreign exchange reserves position has been below two months worth of imports.
Recent figures from the central bank show that gross official reserves stood at $404.18 million (about K333 billion), an equivalent of 1.62 months of import cover in July.
This is down from $424.99 million (about K348 billion), an equivalent of 1.70 months of import cover in June 2021.
In the recent past, Malawi has seen an increase in demand for forex which, according to RBM, continued to surpass the supply required for financing it.
Investment and advisory firm Heritage Partners hailed the central bank for the position taken.
In an interview yesterday, Heritage Partners Managing Consultant Cosmas Chigwe said the move would help ease the pressure on the market.
“This is a good thing and it was inevitable in the long term because, with the situation we are in now, the Reserve Bank had to do something about improving the supply of foreign exchange on the market because demand was outweighing supply,” he said.
Malawi remains a predominantly consuming and importing nation despite attempts made to grow the export base.
A basket of tobacco, tea, sugar, groundnuts, soya beans and soya bean extracts and residues, other dried legumes, and macadamia nuts account for well over 80 percent of Malawi’s export products.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.