National Bank of Malawi (NBM) says the IMF’s decision to delay the approval of $20 million [K8 billion] under the three-year Extended Credit Facility (ECF) and Norway’s withholding of $24 million [K9.8 billion] budgetary support will likely lead to a decline in import cover in the fourth quarter [October—December].
The Malawi Stock Exchange (MSE)-listed financial institution said in its economic newsletter for October 2013 that the decision by the International Monetary Fund (IMF) and Norway, one of the key members of the Common Approach to Budget Support (Cabs), may also compel other donors to follow suit.
The two have made their decisions in view of the Capital Hill looting which has defrauded Treasury of billions of kwacha.
“Since the recent performance of the kwacha has been linked to perceptions of market players on the reserves position, the IMF announcement is likely to heighten speculation on the kwacha going forward.
“The above notwithstanding, there may be a silver lining in the cloud as the local currency has already depreciated considerably from approximately K330/1US dollar since the end of the tobacco season to the current levels,” said the biggest bank in terms of assets and market capitalisation.
The kwacha has considerably depreciated against other major trading currencies and is now officially trading at K412 to a dollar, K654 to pound, K550 to euro and K42 against the rand.
But the bank said the value of the kwacha is still lower than at K420 to a dollar where it peaked in April this year after the 49 percent devaluation of May 2012.
“The current high price of the currency is therefore already curbing demand for the dollar to some extent reinforced by the fact that most importers took advantage of the strong kwacha earlier in the year to stock up for expected sales in the last quarter of the year,” said the bank.
NBM said the ongoing devaluation is, therefore, only eating into economic rents of most businesses as they already priced their goods at K420 to a dollar in April 2013 which is when the local currency peaked.
The bank has forecast that the kwacha is expected to trade at current levels though with some marginal depreciation.
The IMF has projected that Malawi economic growth as measured by gross domestic product (GDP) is expected to rebound from a tepid 1.8 percent in 2012 to five percent in 2013 largely buoyed by improvements in agricultural, forestry and fishing sector and thereafter forecast to peak at 6.1 percent in 2014.
The agriculture sector will peak mainly on the recovery of tobacco output from 79 million kilogrammes (kg) last year to 156 million kg in 2013 which has raked in $361.8 million from $177 million last year.
