Forex reserves at $145M above requirement

The Reserve Bank of Malawi (RBM) says despite being in the lean period, the country’s net official foreign exchange reserves surpassed the three months minimum requirement with an overage of $145.8 million during 2019 fourth quarter.

This was a better performance compared to a deficit of $98.3 million, which was below the three months minimum requirement registered in the preceding quarter.

According to the Financial and Economic Review report released by RBM, year on year, the reserves registered an almost double overage compared to $52.5 million recorded in the same period in 2018.

In the period under review, official foreign exchange reserves grew to $819.5 million at end of 2019 fourth quarter compared to $631.6 million in the previous quarter and $747.2 million recorded in a corresponding period in 2018.

Due to the overage, import coverage improved to 3.9 months during the period under review from 3.0 months in the previous quarter.

RBM spokesperson Mbane Ngwira said he was in a meeting and asked for more time to comment on what triggered the surplus despite being in the lean period.

However, former minister of Finance, Economic Planning and Development Joseph Mwanamvekha earlier said he expected several financial agreements he signed with development partners late last year for various projects to bolster the forex reserves and stabilise the economy.

Professor of economics at the University of Malawi, Ben Kalua, said in an interview that whatever the source of the reserves, it spells good news for the country because Malawi has had sustained perpetual deficit of forex reserves situation over the past years.

He said the development should excite everyone in the economy only if it can be sustained over time, adding that Malawi needs to diversify its export base to sustain the bumper foreign exchange reserves status.

Said Kalua: “This is good news but we should look at strategies to sustain the reserves and it includes ensuring we diversify our exports. We can diversify, for instance, through intra industry trade with neighbours which could earn the country sufficient forex.

“Intra industry trade is most important and fast growing type of trade globally but sadly Malawi continues to work in isolation and waging trade wars against its neighbours just like it is happening currently in Europe”.

 Kalua cited Malawi, Mozambique, Tanzania and Zambia (MMTZ) accord where Malawi was supposed to be exporting products but Malawi failed in the deal due to compliance issues.

Meanwhile, the Malawi kwacha remained relatively stable in the period under review and traded at K738.87 per US dollar as at end December 2019.

In the 2019/2020 K1.84 trillion budget, Treasury projects a K750 exchange rate to a dollar premised on stable policy rate at 13.5 percent, low inflation and interest rates in an anticipated stable economy. Between 2012 and 2013 gross official forex reserves fell to a record low of 0.9 months of import cover at a time when the economy was undergoing recession due to liberalisation of the kwacha over foreign notes.

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