Import cover to fall below 1 month—IMF
The International Monetary Fund (IMF) has projected that Malawi’s official import cover will average 0.3 months this year, the lowest foreign exchange reserves position in Africa and the lowest in the last five years.
Import cover represents the number of months a country can continue to support its current level of imports if all other inflows and outflows cease.
Generally, three months of import cover is internationally accepted as a healthy reserves position.
The IMF’s projection contained in the Regional Economic Outlook for sub-Saharan Africa published on Friday means the country could be unable to meet its import bills.
IMF said the situation is being exacerbated by the global slowdown and tighter financial conditions, which are reducing the supply of official development assistance to the sub-Saharan Africa region.
Reads the report in part: “On the other hand, the added exchange rate pressures from a strengthening United States dollar is increasing imported inflation for the region, especially in low-income countries while draining reserves and undermining financial stability in countries with balance sheet vulnerabilities.”
The development comes at a time Malawi is reeling from foreign exchange shortages, a situation which is affecting importation of basics and crucial items such as fuel and fertilisers.
This is despite the central bank’s move to devalue the local unit by 25 percent in May this year amid forex shortages in a move meant to realign the exchange rate with economic fundamentals.
Meanwhile, the gross official reserves under the direct control of the RBM have continued to fall, reported at $357.18 million, which is an equivalent of 1.43 months of import cover in September 2022 from $521.87 million, an equivalent of 2.09 months of import cover in August 2021, according to an RBM Financial Markets Development Report published on Friday.
Financial Market Dealers Association of Malawi vice-president Jim Kalua is quoted as having said that there is high demand for foreix compared to supply.
Malawi University of Business and Applied Sciences economics lecturer Betchani Tchereni has since warned that an import cover below recommended three months of import cover is potentially dangerous for the health of an economy, saying it might affect the country’s ability to import critical items and affect businesses.
“The current forex situation is not ideal. This means most businesses would continue to struggle with forex challenges, a situation which could affect production,” he said.
Malawi Confederation of Chambers of Commerce and Industry president Lekani Katandula is on record as having said the forex supply challenges will continue to affect business.
At 0.3 months of import cover, IMF report has also put Malawi’s import cover at the bottom in the group of low-income countries.
Mauritius tops the list with a projected 11.7 months of import cover this year.