Standard bank group projects weak kwacha
Standard Bank Group, the parent company of Malawi Stock Exchange-listed Standard Bank plc, says it will revise upwards its exchange rate outlook for Malawi to K2 300 against the dollar by October this year.
The country’s official exchange rate for the dollar is K1 751.
The bank has since warned that economic challenges bedevilling the country could affect the four-year $175 million (about K306 billion) International Monetary Fund Extended Credit Facility (ECF) programme clinched last November.
In its country report for Malawi, Standard Bank Group said the country’s external position has been under pressure due to a weak balance of payment and noted that while the ECF is key to closing the funding gap, continued financial challenges could result in falling short of reaching the IMF’s target for the next tranche.
Reads the report in part: “News reports in Malawi note that low revenue collection, ballooning expenditure and delayed implementation of the integrated financial management system have been impeding Malawi’s ability to stay on track with the ECF programme. Per our note, Malawi is falling short of fiscal targets.”
The bank’s position echoes what United States Department of Treasury deputy assistant secretary for Africa and Middle East Eric Meyer said on August 23 at the conclusion of his tour that Malawi could fall short of reaching the requisite indicative targets to receive the next tranche of ECF funding.
Among others, the Standard Bank Group report indicates that as of June 2024, domestic revenue excluding grants amounted K694 billion, which is below the indicative target set by the IMF of K747 billion.
It said the target set for the primary fiscal balance was a minimum of a surplus of K95.5 billion while the actual balance amounted to a deficit of minus K5.7 billion.
The bank said the local unit is trading at a premium of between 45 and 50 percent parallel rate which compares with the past trends where the currency was devalued by 25 and 44 percent in 2022 and 2023 respectively.
But in a brief interview yesterday, Standard Bank plc chief executive Phillip Madinga said he does not expect an imminent devaluation of the kwacha.
In a seperate interview yesterday, Reserve Bank of Malawi spokesperson Mark Lungu downplayed the ECF fears, stressing that the programme is meant to stabilise the economy, as such, authorities are committed to remaining within the parameters.
He said: “The authorities are committed to remain within the agreed parameters.
“As a country we need the ECF as it is a gateway to a number of development support.”
Meanwhile, an investment advisory firm, Nico Asset Managers Limited said in its July Economic Report that Malawi’s ECF future will depend on IMF’s tolerance to fiscal slippages while projecting the kwacha to trade at K1 879 to a dollar by end this year.
