The Reserve Bank of Malawi (RBM), in a move to incentivise exporters, has freed all foreign exchange that exporters earn from their export consignments by scrapping off the conversion requirement.
Economics professor at the University of Malawi’s Chancellor College, Ben Kaluwa, has described the policy shift as significant as it will guarantee the availability of more foreign currency to local exporters, a move that will compel them to expand the country’s narrow export base.
In 1994, the central bank introduced an export incentive scheme that allows exporters to retain their export proceeds in Foreign Currency Denominated Accounts (FCDAs).
The scheme started with a retention/conversion ratio of 10/90 and has over the years been adjusted until it was increased to 80/20 in 2013.
RBM Governor Charles Chuka said yesterday that in line with the progress achieved to date, the bank has determined that it is now appropriate to complete the incentive scheme by eliminating the conversion requirement.
“Thus exporters may now retain in their FCDAs up to 100 percent of their export proceeds,” he said.
Kaluwa said the move should excite exporters who have been arguing that the conversion/retention ratio was denying them of the much-needed foreign exchange.
“This is a significant change to exporters. In terms of providing signals to encourage exports, the Reserve Bank is on the right track,” he said.
Economic Empowerment Action Group (Eeag) executive director Temson Chinjala yesterday hailed RBM’s move, saying it has come at the time forex levels on the market are encouraging.
“This move is critical because it will ensure that exporters have readily available foreign exchange for their use,” he said.
Figures from RBM show that cumulative foreign exchange reserves are at $926 million or 4.86 months of import cover.
Economic analysts say the move will help Malawi to move to the exchange control liberalisation framework enshrined in the protocols under Southern Africa Development Community (Sadc) and Common Market for Eastern and Southern Africa (Comesa).
Malawi has, since May 2012, been liberalising its foreign exchange market after it devalued the local currency by 49 percent and let it float according to the market dictates of demand and supply.
In the same year, RBM also stopped the requirement by authorised foreign exchange dealers to endorse traveller’s passports with the amount of foreign exchange bought.