Authorities tipped on boosting forex reserves
The World Bank says the Malawi Government has an opportunity to implement measures that can boost foreign exchange reserves by enhancing private financial flows, especially foreign direct investment and remittances.
The Bretton Woods institution said this in the bi-annual Malawi Economic Monitor published last week.
The bank said unlike most developing countries, in Malawi, aid inflows are still by far the most significant source of foreign exchange which puts the country in a vulnerable state.
It said while aid is the largest inflow for Malawi, most of this support, especially from bilateral development partners is off-budget, which is retained by commercial banks and, therefore, not part of official reserves.
Reads the report in part: “Foreign direct investment can, therefore, increase reserves directly through the inflow of foreign capital, without creating any repayment burden.
“Foreign direct investment can also help earn foreign exchange by increasing export receipts indirectly. On the other hand, remittances can also help boost foreign exchange for Malawi even higher than foreign direct investment and portfolio investment flows.”
The bank has also encouraged greater exchange rate flexibility to improve the foreign exchange position, saying the misalignment of the real exchange rate can reduce exports and creates uncertainty for businesses.
In May this year, the Reserve Bank of Malawi devalued the kwacha by 25 percent, a move RBM Governor Wilson Banda said was meant to align the foreign exchange supply to the macroeconomic fundamentals and ensure supply of forex in the formal market.
He said in a recent interview that aid remains the only hope for Malawi, at least in the short to medium-term.
Banda, however, said government is also looking at other long-term measures such as mining and mega farms to boost exports and the country’s foreign exchange position.
“We have since embarked on a mega farms project and we are hoping that this comes to fruition in the next season,” he said.
Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni in an interview on Sunday encouraged investment in productive sectors such as the mega farms, cannabis production and mining, saying these will bring in the necessary foreign exchange.
Malawi is reeling from foreign exchange shortages, a situation which is affecting importation of basic and crucial items such as fuel and fertilisers.
Meanwhile, according to RBM figures, Malawi is importing $3 billion (about K3.1 trillion) worth of goods and exporting $1 billion (about K1 trillion) worth of goods, creating a $2 billion (about K2 trillion) trade gap and worsening the forex situation.
