Malawi import cover nears two months

Malawi’s gross official reserves as at May 29 2013 had accumulated to $343 million, anchoring hopes of continued foreign exchange availability in the formal financial system to help importers meet their demands.

The $343 million is an equivalent of 1.8 months of import cover, according to latest published statistics the Reserve Bank of Malawi (RBM).

Such a reserve position is way above the $206 million worth of foreign reserves or an equivalent of 1.10 months of import cover the economy was sitting as at 26th April, 2013.

Malawi’s monthly foreign reserve requirement is pegged at $188.1 million, an upward revision from a monthly demand of $129 million

A Chancellor College based economist, said yesterday the recent accumulation in foreign reserves is a symptom that most economic reforms that government is implementing are responding to market dynamics.

“You might be aware that even the kwacha has in recent times gained heavily to the United State Dollar which is just a reflection of demand and supply forces on the market meaning that the market has accumulated more foreign currency which is proving to surpass the demand,” said the economist who opted for anonymity.

As of Monday, published exchange rates indicated that the kwacha is selling at around K315 to a dollar, notably at Indebank from a peak of about K420 few weeks ago.

With tobacco dollars trickling in on the market, analysts have said the closure of the market somewhere in September could prevent further appreciation of the kwacha and propel a huge demand for foreign currency on the market as then foreign exchange will likely be in short supply.

But, authorities are keeping their fingers crossed that should donor inflows-which is another most important source of foreign currency-be steady in the first half of the 2013/14 financial year, the situation could help the local unit not to cede massively to other international currencies.

Tobacco alone accounts for over 60 percent of Malawi’s total export earnings and this year government expects tobacco proceeds to hit $300 million up from $177 million earned in the 2012 season.

Reserve Bank of Malawi (RBM) Governor Charles Chuka told Business News in a recent exclusive interview that he expects significant improvement in the country’s foreign reserve position backed by the inflow of tobacco foreign currency as well as strong package of both monetary and fiscal policy implementation.

Said Chuka: “The reserve level is improving. On present prospects, therefore, we should meet our targets of two months import cover and about 14 percent inflation by end December, 2013.”

When he presented the 2013/14 Malawi national budget, Finance Minister Ken Lipenga linked the availability of foreign exchange as well as fuel to various reforms that government continues to implement saying there is strong evidence that the economy is starting to recover.

“Mr. Speaker, Sir, in January when I presented the mid-term budget review, we celebrated the availability of fuel. People were no longer sleeping in queues at filling stations or chasing fuel tankers, often empty ones. I also spoke of the availability of foreign exchange.

Thanks to measures that this House approved, we have now been able as a country to clear foreign exchange arrears and re-establish lines of credit for most of our industries, ” said Lipenga.