The Economist Intelligence Unit (EIU) says the country’s foreign exchange (forex) reserves are projected to improve.
The projection contradicts Reserve Bank of Malawi (RBM)’s forecast painted a gloomy outlook
In its May 2021 Monthly Economic Review, Nico Asset Managers says EIU is banking on proceeds from tobacco, maize and the newly introduced gold market.
Reads the report in part: “The Malawi kwacha depreciated against the US dollar in May 2021 due to continuous demand and supply imbalances.
“However, according to the EIU, foreign exchange reserves are expected to improve as proceeds from the tobacco selling season continue to enter the market, proceeds from the structured gold market introduced by the Reserve Bank of Malawi, as well as potential earnings from maize exports after the bumper harvest experienced in 2021.”
Treasury figures show that since RBM established structured minerals and gold market on May 1 2021, gold worth K60 million has been sold.
Malawi is also banking on forex from the sale of 1.5 million metric tonnes surplus maize this year.
The Ministry of Trade has since signed a memorandum of understanding with the Government of Sudan for cereal exports, including maize worth
Meanwhile, tobacco prices have remained higher in 2021 compared to 2020 as the current demand for tobacco is estimated at 132.3 million kg, higher than the estimated crop output of 124.3 million kilogrammes (kg).
AHL Group figures show that during week eight of tobacco sales, Malawi generated $97.76 million from the sale of 59.4 million kg of tobacco at an average price of $1.64 per kg.
AHL Group spokesperson Tereza Ndanga told Business News yesterday that this year’s tobacco market is better than last year.
She said: “If you look at the quality of the leaf, presentation, prices, volumes sold and the revenue generated this far, the market in the current season is better
“The rejection rate continues to be lower than last year during the same period. By week eight, the no-sale rejection rate was at 30 percent, compared to 45 percent at the same time last year.”
During the review period, official forex reserves increased to $414.41 million (1.66 months’ worth of import cover) from $392.01 million (1.88 months of import cover) in April 2021.
However, as at May 2021 31, total forex reserves stood at $ 784.05 million (an equivalent of 14 months of import cover), a decrease from $784.62 million (3.76 months of import cover) registered at the end of April 2021.
Despite the favourable outlook, the RBM has projected that the exchange rate will depreciate by about 2.2 percent in the second quarter of 2021 on account of a rise in oil and fertiliser prices over the short to medium-term and a fall in maize prices by 14.3 percent to K150 per kilogramme (kg) by June 2021.
The kwacha, on the other hand, depreciated by 0.5 percent during the review period, trading at K796.06, up from the previous month’s K792.08 to the dollar.
Treasury is, however’ upbeat that the local unit will soon gain stability to trade at K780 to a dollar banking on the fact that economic prospects for Malawi are showing signs.