Uncertainity as Malawi tobacco market nears closure
With the sales of tobacco—Malawi’s main foreign exchange earner—coming to an end, there is apprehension on the availability of forex and the battering the local currency will suffer.
The fears are coming at time the donors, who contribute 40 percent of financial resources to the country’s budget, have not made any commitment on whether they will support this year’s fiscal plan or any future plan.
Economics professor at University of Malawi’s Chancellor College Ben Kaluwa yesterday said foreign exchange availability could be a tall order soon considering a huge gap created by the freeze in budget support by the country’s donors under Common Approach to Budget Support (Cabs).
“We should brace up for a rough ride because there are number of activities that will require the usage of foreign exchange. This will obviously put pressure on the value of the kwacha and could result in its value depreciating,” he said.
He, however, said this is not surprising considering that Malawi’s foreign exchange availability is seasonal.
Foreign currency from the donors coupled with what the country realises from tobacco, which accounts for more than half of the country’s foreign exchange earnings, help to support the kwacha, which stabilised and, at times, appreciated since the sales of the leaf started.
After 21 weeks of tobacco sales and more than 180 million kilogrammes (kg) of tobacco sold, the country has realised more than $340 million. This is lower than what was realised during the same period last year at $347 million out of 161 million kg sold, according to Tobacco Control Commission (TCC).
The Economist Intelligence Unit (EIU) has forecast that the local currency would average K422.78 against the dollar this year, a development that will raise fears of the increased price of strategic imports such as fertiliser and fuel.
But the Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said there is a lot that goes into exchange rate determination and dismissed speculation on currency movement.
“We are happy that we have managed to stabilise the currency,” he said.
The central bank has been managing the movement of the currency to ensure stability by buying foreign currency from the market.
Currently, the kwacha has stabilised to around K380 in most authorised dealer banks (ADBs) which is an appreciation from K435 in December last year.
In its daily financial market report, RBM said forex purchases from the market has continued to boost gross official reserves—under the direct control of central bank—which increased to $493 million from $487 million.
At the same, ADBs have also been buying foreign exchange from the market. The report shows that ADBs purchases of forex were recorded at $58.05 million, exceeding sales by $12.86 million.
“The kwacha has remained unchanged against the dollar and gained value against the British pound and the euro. The kwacha has nonetheless depreciated against the rand,” said the RBM
