RBM explains forex position - The Times Group Malawi

RBM explains forex position – The Times Group Malawi

Post was last updated: December 2, 2020

By Feston Malekezo 

The Reserve Bank of Malawi (RBM) has said Malawians should not press the panic button over the forex situation in the country, saying reserves remain slightly above the internationally recommended three months’ worth of import cover.

This, however, comes as the country has in the recent past seen a decline in foreign exchange supply which has in turn put pressure on the country’s foreign exchange reserves.

Covid-19 has affected supply of forex, with figures from the central bank showing that the country imported goods worth $2 billion [about K1.5 trillion] between January and September 2020 while exporting goods worth $500 million [about K375 billion] during the same time, resulting in a trade deficit of $1.5 billion [about K1.125 trillion].

But in a response to an emailed questionnaire, RBM spokesperson Onelie Nkuna said official reserves remained above the targeted flow of three months of import cover.

She, however, conceded that the reserves position is lower this year than the same time last year.

“As you might be aware, the fundamental reason for this outturn was spillover effects of the Covid-19 pandemic which led to lower-than anticipated export earnings amidst growing demand for Covid-19-related imports. This was compounded by speculative tendencies but also seasonal increase in demand to import agriculture related materials,” she said.

The low supply in foreign exchange in the market, exacerbated by Covid-19, is putting pressure on the local unit, the Malawi Kwacha.

As of yesterday, the unit was trading at K749 to the dollar in most authorised dealer banks and at about K860 on the parallel market.

Financial Market Dealers Association, immediate past president, Patricia Hamisi said the market trends were not surprising.

“Also, the trend and statistics are showing that the import bill keeps growing compared to what we are exporting and this negative balance of payments has to reflect in the reserves. The central bank has been intervening and, as long as they have sufficient reserves, they will support the commercial banks until things improve,” Hamisi said.

Malawi remains an agrarian economy with Tobacco still the top export crop. Although the leaf fetched better prices this season than last year, the country sold  112.89 million kilogrammes (kg) of tobacco this year compared to 165.67 million kg sold in 2019,  realising $173.5 million.

Malawi’s dream of turning into a manufacturing and exporting nation from a predominantly consuming and importing nation seems far from being attained Currently, Malawi is importing high volumes of fertiliser and seeds under the K158.3 billion Affordable Input Programme where 213,800 metric tonnes of NPK and 213,800 metric tonnes of Urea are to be imported.

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