Forex deficit haunts firms

Foreign exchange shortages in Authorised Dealer Banks (ADBs) have forced commercial banks to continue rationing the hard cash, a situation which is crippling operations of businesses, it has emerged. 

The situation, which market analysts have attributed to the continued scarcity of foreign exchange and the subsequent pressure on the local currency due to the recent disruptions in the global supply chain and logistics, has seen banks revising the forex allocation limit for their customers.

For instance, First Capital Bank last week  issued a circular advising customers that it has revised downwards the forex allocation limit on all its Gold Visa card holders to $2 000 (about K2 million) from $3 000 (about K3.1 million).

The move follows similar measures by other commercial banks, namely Standard Bank plc,  Ecobank Malawi, NBS Bank plc and FDH Bank plc, which have also revised their forex allocation limits  amid the foreign exchange shortages. 

The development, according to the Cross-border Traders Association, has burdened businesses who now have little to buy goods.

Speaking in an interview yesterday, the association’s president Steve Yohane said the forex situation is making it hard for traders to participate in international businesses as the cost of goods is high amid limits on how much they can use to buy goods.

He said: “The unavailability of foreign exchange on the market, which is becoming intense, is making our business difficult.

“Prices of items keep rising, yet the limit keeps declining, making it hard for us to make reasonable business.”

Malawi Confederation of Chambers of Commerce and Industry president Lekani Katandula, who is also Illovo Sugar (Malawi) plc managing director, said the forex supply challenges continue to have a big impact on business

“It is now up to us to collectively find ways to boost our exports and reduce imports to save the country from the ongoing challenges that have been presented in view of the forex scarcity,” he said.

Speaking separately, a Blantyre-based cross-border trader Brenda Nampeya said they are failing to order enough stock because of forex limits which have affected their businesses

She said: “The new policy measures instituted in view of the forex shortages are crippling us as we now cannot purchase goods that we require.

“Banks now have to approve how much we carry and this is straining us. We are losing out on businesses.” 

Reserve Bank of Malawi  (RBM) figures show that as of August 31, gross official forex reserves, which are under the direct control of RBM, stood at $378.89, an equivalent of 1.52 months of import cover from $604.50 or 2.42 months of import cover in August 2021.

On one hand, as at August 31 2022, figures show that all ADBs had cumulative foreign exchange of $398.43,an equivalent of 1.59 months of import cover.

Financial Dealers Association of Malawi vice-president Jim Kalua is on record as having said that  there is high demand for forex compared to supply, adding that the country is in a fix as reserves are too low and sitting on a huge import backlog.

Troubled with the forex scarcity, RBM governor Wilson Banda recently announced some policy measures to avert the forex situation.

RBM also devalued the local unit by 25 percent effective May 27 this year amid a crippling shortage of foreign exchange.

The bank justified the move, saying it aimed to realign the exchange rate with economic fundamentals to ensure availability of forex.