Reserve Bank of Malawi (RBM) figures show that an increase in exports coupled with a slowdown in imports in January boosted Malawi’s total foreign reserves from $530.9 million (2.1 months of import cover) to $570.6 million (2.3 months).
The January edition of the Monthly Economic Review published by the central bank indicated that total foreign exchange reserves, comprising gross official reserves and forex deposits in commercial banks, increased by 7.47 percent from $530.9 million (2.1 months of imports) at the end of December 2024.
RBM attributed the accumulation of foreign exchange reserves in January to increases in both gross official reserves and private sector reserves.
The report reads: “Meanwhile, the reserves position in the review month was slightly lower compared to $574.8 million [2.3 months of imports] recorded in the corresponding period of 2024.”
Although this suggests a modest improvement in Malawi’s foreign exchange position, the reserves remain below the 3.9 months of import cover recommended by international financial institutions, including the World Bank and the International Monetary Fund for import-dependent economies.
Both local and international businesses have raised concerns that limited foreign exchange reserves are constraining their ability to import.
But the forex cover boost, coming weeks before the tobacco auction floor’s opening that is set to help further improve forex reserves should relieve entrepreneurs, especially small-scale ones.
In an earlier interview yesterday, Chindikani Investments founder and managing director Martha Nyirenda stated that local SMEs have endured prolonged delays in securing foreign exchange from authorised dealer banks.
She said: “Sometimes, we fail to deliver products on time due to these delays.
“We are losing our customers’ confidence, and there is a risk they might take their business elsewhere.”
At a hybrid business meeting last week between local importers and Indian exporters, representatives of the Indian delegation also voiced concerns that local suppliers frequently delay payments due to difficulties in accessing foreign exchange from authorised dealer banks.
The modest increase in the country’s forex cover coincided with a slight improvement in the local trade deficit from $250.3 million in December 2024 to $187.2 million in December 2024.
The narrowing trade deficit was driven by a 33.7 percent rise in export earnings, mainly from tobacco, tea, macadamia nuts and rubber. Exports grew to $86.4 million, outpacing the marginal 1.3 percent rise in imports to $273.6 million.
However, the trade gap remains wider than the $184.8 million recorded in January 2024, underscoring the ongoing forex pressures.
RBM has consistently argued that Malawi possesses sufficient foreign exchange reserves, but much of it remains locked in the informal market, where parallel traders sell at approximately K4 000 per dollar, more than double the K1 750 rate offered by authorised dealer banks.
In response, the central bank initiated a crackdown on parallel foreign exchange traders with assistance from fiscal police and other law enforcement agencies.
The crackdown followed protests from small and medium enterprises over forex shortages in authorised dealer banks and a widening spread between the formal exchange rate and the parallel rate.
The raids temporarily reduced the exchange rate to K3 300 before it began rising again. However, some analysts argue that enforcement alone will not resolve the forex shortages unless structural economic issues are addressed.
Scotland-based Malawian economist Velli Nyirongo said yesterday Malawi needs to focus on boosting exports and reducing reliance on imports to build sustainable reserves.
“Otherwise, we will continue experiencing these cyclical shortages,” he said.
