Import cover increases to $425 million

Malawi’s official foreign exchange reserves have accumulated to 2.23 months of import cover, buoyed by the trickling in of tobacco dollars, Reserve Bank of Malawi (RBM) statistics have indicated.

But a Chancellor College professor of economics yesterday reasoned that although there is an improvement in the foreign exchange build-up, the reserves are not necessarily enough to cover the economy’s lean period.

According to RBM daily financial market statistics, the country’s import cover, as at May 21 2014, edged up to $425 million, an equivalent of 2.23 months from a reserve position of $416 million or 2.18 months as of 20th May, 2014.

Currently, $191 million is used as a calculation for the country’s monthly foreign exchange consumption, an upward revision from $181 million a month ago.

The improved foreign exchange accumulation-which is greatly attributed to the trickling in of tobacco proceeds realised at the country’s tobacco auction floors- should help the importers of basic gods and services into the country and all manufacturers easily meet their import demand.

The country also needs adequate foreign currency to help service foreign debt and also pay government expenditure overseas, among other key importance of foreign exchange.

Malawi relies on exports and donor aid as major source of foreign exchange inflows but currently there is still uncertainty on the part of budget support from Malawi’s major donors sitting under the Common Approach to Budget Support (Cabs) who suspended budget support since last November due to the revelation of theft of taxpayers’ money at Capital Hill popularly known Cashgate.

Economic commentators contend that the inflow of tobacco foreign exchange is significantly fueling the prevailing appreciation of the kwacha.