By Kingsley Jassi:
The continued decline of foreign reserves has prompted the Reserve Bank of Malawi (RBM) to develop a new framework that will compel commercial banks to allocate specific share of their foreign reserves to productive sectors.
This was disclosed by RBM officials at the recent monetary policy technical forum in Lilongwe where it was also disclosed that some Foreign Currency Denominated Account (FCDA) holders are holding on to their forex, further fueling the unavailability for productive purposes.
With monetary policy instruments failing to curb inflationary pressures, the central bank worries that there is a need to boost production.
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According to Director for Financial Markets Chakudza Linje, this is part of the central bank’s interventions on the supply side bottlenecks that exacerbate the structural imbalances in the economy.
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She said the draft framework has already been shared with commercial banks for appreciation and will be announced soon once the processes are finalized.
“This will ensure productive sectors are allocated the forex needed to produce for both export and import substitution. Currently, it is at the bank’s discretion on who to allocate forex to,” she said.
The Monetary Policy report shows there is a worsening trend of official and private sector foreign reserves currently at just above $500 million.
The central bank has been using a number of measures under the exchange rate regulations in trying to limit the flow towards the black market which appears to thrive amid the growing crisis.
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The RBM officials further disclosed that the central bank was engaging some foreign financing institutions to bankroll some catalytic investments in the country while facilitating the rolling out of some ventures.
RBM Director of Economic Policy Research Mark Lungu said: “Some of the institutions are already in discussions with local companies but we cannot disclose more because things are still at the early stages.”
In a separate interview, National Planning Commission (NPC’s) Director of Planning, Grace Kunchulesi said following the Malawi 2063’s principles, there ought to be reference to developmental state philosophy in any industrialization approach.
“This entails that the state should unlock opportunities by making investments in catalytic areas while removing any investment obstacles in the priority sectors to unlock the full potential of the private sector,” she explained.
Malawi’s terms of trade in the first six months of this year deteriorated as the deficit increased by 9.8 percent to $1.27 billion. By June the country imported close to $1.6 billion worth of goods while exporting just $323.7 million.
