Forex measures under spotlight
There are mixed reactions to the Reserve Bank of Malawi (RBM) plan to re-introduce customs declaration forms for exports to help track forex flows with some stakeholders arguing the move could fuel tax evasion.
In a statement, RBM Governor Wilson Banda said the measure, set to come into effect on May 17, will ensure that all export earnings are repatriated to Malawi.
Under the new measure, he indicated that exporters whose export value exceeds $2 000 (about K2 million) will be mandated to declare these through an electronic form in line with the Exchange Control Regulations of 2022.
But in their reactions on Tuesday, analysts said the move, though to some extent would ensure that actual export proceeds are correctly declared, will not solve the forex woes.
In an interview, financial markets strategist Misheck Esau observed that most of the forex measures the central bank is introducing are not working as the policies are not speaking to each other.
He said: “We know this is being done in good faith and we can only remain hopeful that some of these measures will finally work.
“Not many things around the exchange rate are working. All these things have got to do with the correctness of the exchange rate, but we are not getting the most of it.
Esau said the country’s rhetoric on boosting forex and production does not match the action taken in implementing some policies, adding that the country needs serious consideration and relook on factors affecting production.
“We need production to move out of this misery. Sadly, the measures that are put to stimulate production counter the same production,” he said.
Financial Market Dealers Association president Leslie Fatch welcomed the new measure, saying there have been calls to monetary authorities to improve how exports data is recorded to ensure that all gaps in repatriation of theproceeds are closed.
He said: “The system will improve on efficiencies in reporting of exports as it tries to consolidate the parties involved in the export, namely the export, the revenue authorities who record and monitor exports as they go out of the borders, the commercial banks through which export proceeds are received and the central bank as the monetary and reporting authority.”
Economic statistician Alick Nyasulu in an interview warned that too much control on the forex market could be disastrous to the central bank, saying too much control may lead to evasion.
He said: “As long as there are more exchange controls, there will always be motivation for exporters to engage in transfer pricing.
“For amounts such as $2 000, there will be a motivation to underdeclare if trading formally or simply exploit informal export channels.”
Speaking separately, market analyst Bond Mtembezeka observed that the success of such measures can only go as far as the country has ability to generate forex.
“The forex shortage issue is fundamentally a capacity issue. As a country, we are not doing enough to export more. We can have these measures in place but if there is little to export the forex shortage problem will persist indefinitely,” he said.
On the other hand, economist Edward Chilima, while describing the measure as important, said the worry is on how the central bank will ensure compliance and avoid evasion.
“It is a clear sign that we have serious forex shortages and we need to guard every available forex,” he said.
Over the past two years, the RBM has introduced a number of measures to ensure foreign exchange availability in response to the tightness in the foreign exchange market.
