Financial Market Dealers Association (Fimda) and National Working Group on Trade Policy have joined the Economics Association of Malawi (Ecama) in calling for tougher controls on forex amid concerns over the crisis’ capacity to disrupt businesses.
The call comes at a time the country’s import cover has stagnated at about 2.2 months, a development that local analysts believe has limited the local Small and Medium Enterprises (SMES) capacity to export raw materials and essential products.
National Working Group on Trade Policy chairperson Frederick Changaya cautioned that the forex shortages, coming at a time when the country is yet to recover from the 44 percent currency realignment implemented by the Reserve Bank of Malawi last year, would push businesses to borrow more to compensate for the declining forex reserves.
of formal channels
He said: “This reduces the competitiveness of the domestic industries to compete in the region for exports and on the domestic market against imports.
“Therefore it hampers forex generation while enhancing demand for forex through inward coming competition.”
Changaya said if left unchecked, the forex shortages and limitations it imposes on businesses will create a feedback loop where the crises will keep reinforcing each other.
“As such, we implore clients, both suppliers of currency and buyers, to use formal channels which are guided by the Central Bank as a regulator of financial markets in Malawi,” he said.
Fimda president Leslie Fatch expressed concern that the current situation is providing an incentive to use the informal market, where the promise of an informal and unregulated market might be too hard to resist.
He said: “As this parallel market flourishes, the resultant forex scarcity on the formal market affects the effectiveness of formal channels.
“This leads to low supply, which creates speculation and panic and further forces the parallel market rate even higher as demand for informal imports is pushed to the parallel channels.”
Fatch, however, cautioned that the informal markets carry a settlement risk as either party can easily default without any legal recourse.
