The Reserve Bank of Malawi (RBM) has softened conditions for diaspora foreign currency denominated accounts (FCDAs) to encourage remittances in a move analysts say will help boost foreign exchange reserves and slow dollar flight.
RBM deputy governor responsible for economics and regulation Henry Mathanga said in a statement that all diaspora FCDA holders may make hard currency withdrawals for any purpose once per calendar month up to 50 percent of the account balance while those seeking to exceed this limit will require prior approval from the central bank.
The bank has also declared that cross-border remittances and payments from diaspora FCDAs are not subject to exchange control requirements.
For diaspora account holders that return to Malawi temporarily or permanently, authorised dealer banks (ADBs) will continue to treat inflows from the individual’s diaspora engagement as diaspora funds provided the account holder submits proof of such earnings, the statement said.
Said Mathanga: “Subject to compliance with foreign exchange legislation and other regulatory requirements, ADBs offer favourable conditions for operating diaspora FCDAs.
“The bank remains committed to fostering an environment that promotes and incentivises diaspora remittances.”
According to RBM, ADBs may open a diaspora FCDA for a Malawian citizen who provides authentic documentation proving that they have relocated or will relocate abroad for at least 12 consecutive months.
The move by the central bank comes at a time Malawi has been in a severe balance of payments crisis since 2021, marked by a shortage of foreign currency reserves to pay for imports and service foreign liabilities.
Although the gap between the median forex bureau rates and the official rate has remained stable, at approximately 11.5 percent, the parallel market premium has surged significantly, exceeding 150 percent.
It also comes at a time findings of a Draft Report of the Feasibility Study on Diaspora Engagement for Enhanced Investment highlighted the prevailing exchange rate regime policy as a contributing factor to Malawians in diaspora not making financial investment and remittance back home.
The study, submitted to the International Organisation for Migration by University of Malawi School of Law, Economics and Government Professor Winford Masanjala pointed out that majority of Malawians in the diaspora have a transactional account with three in four respondents or 72 percent, owning a local currency bank account and three in 10 or 30 percent, maintaining a foreign currency-denominated account.
The study also found that Malawians in the diaspora have a big affinity for direct diaspora investment with two in every three respondents owning some sort of an undeveloped residential plot, half already owning residential properties and one third have farms or estates.
In an interview on Tuesday, Scotland-based Malawian economist Velli Nyirongo observed that while the framework is directionally right, until the formal market becomes economically competitive with the parallel market, uptake will remain limited.
He said the monthly 50 percent withdrawal limit, while understandable from a reserves-management perspective, may also deter high-value remitters who require flexibility for investment, property acquisition or business operations, adding that requiring central bank approval for larger withdrawals reintroduces the very friction the policy seeks to remove.
“On paper, RBM’s initiative responds to long-standing diaspora concerns; excessive paperwork, limited digital access, uncertainty around fund status upon return and rigid withdrawal rules,” said Nyirongo.
On his part, Asia-based economic statistician Alick Nyasulu said on Tuesday that while it is too early to tell how effective these changes will be, it is a step in the right direction since excessive regulations that change overnight regarding FCDA accounts tend to discourage those eligible to open them.
“Nonetheless, it is critical that further steps must be put in place to deal with illicit foreign exchange transactions that seem to have found way into the banking industry,” he said.
Former bank executive Benedicto Nkhoma observed that the move will help stabilise foreign exchange reserves by pulling hard currency into the formal system, de-risking diaspora return, discourages rapid drain of forex and gives RBM visibility and control over large forex movements.
“Diaspora remittances are more stable than aid, less volatile than portfolio flows and politically neutral. This policy is not charity to diaspora; it is macro-economic management,” he said.
RBM spokesperson Boston Maliketi Banda was yet to respond to our questionnaire on how the bank is working to address foreign exchange market structural challenges.
However, in an earlier interview, heconceded that short-term solutions like demand management, including currency devaluations, have proven ineffective with boosting exports remaining the only sustainable solution to address the core issue.
RBM data show that net remittances, amount payable after deducting certain charges, fell more sharply from $21 million (about K37 billion) in 2019 to just $6 million (about K11 billion) in 2023.
Meanwhile, Treasury is hoping to generate $250 million (about K438 billion) in foreign exchange every year through its diaspora engagement initiative.
