Effects of drought experienced in the country in the 2014/15 growing season saw the export base earnings shrinking by US$300 million, the Reserve Bank of Malawi (RBM) has said.
In its statement issued last week, RBM said while the government tried to restore fiscal prudence in 2015/16, the hopes were shattered as the impact of the 2014/15 season drought came to light.
“Data collected by the Reserve Bank shows that the drought reduced the country’s export receipts through the banking system by about US$300 million to US$700 million,” reads the statement.
The report further said coupled with rumours that tobacco auctions would generate less foreign exchange, the private sector panicked and demands for foreign exchange shot up in July 2015.
Minister of Finance, Goodall Gondwe, through a statement issued yesterday, acknowledged that the adver s e wea ther conditions might affect the country’s economic prospects.
Gondwe said the country’s economy will improve if certain conditions mainly weather are conducive.
“The government is doing its best and the economy will stabilise somewhere in May this year depending on the climatic conditions and the weather pattern,” he said.
On the kwacha exchange rate, RBM said in normal circumstances, the kwacha should have started stabilising at about K600 against the US dollar in November 2015.
The central bank said it noted, however, that instead of stabilising, the depreciation continued and attributed this to global developments and the stance of monetary policy.
“Reduced demand in global commodity markets and expectations for an increase in US interest rates has caused havoc in the exchange rates of many economies, including Malawi,” explains RBM.
“The Malawi situation is exacerbated by proximity and dependency on the South African economy for imports. The sharp collapse of the rand has resulted in the kwacha appreciating against it, implying increased demand for South African goods. At the same time, imports from China have also picked up with the strengthening of trade linkages,” reads the statement in part.
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