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Home Business Business News

Balance forex market demand, supply—Fimda

by Orama Chiphwanya
30/08/2021
in Business News, Front Page
2 min read
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Financial Market Dealers Association of Malawi (Fimda) has urged monetary authorities to continue a striking balance between market supply and demand of foreign exchange, observing that measures to improve forex availability are crucial.

Fimda president Mclewen Sikwese said yesterday this in an e-mail response in the context of the re-introduction of mandatory sale of exports proceeds introduced by the Reserve Bank of Malawi (RBM) to improve foreign exchange availability.

Under the new provision, all exporters are required to sell a minimum of 30 percent of their export proceeds to authorised dealer banks (ADBs) while retaining 70 percent of the proceeds in their foreign currency denominated accounts (FCDAs).

Sikwese said the re-introduction of the mandatory conversion of 30 percent is critical as it improves the amount of foreign exchange in the market, adding that the immediate positive impact will come from the liquidation of 30 percent of FCDAs holdings of export proceeds.

He said: “Roughly more than 20 percent of the $400 million [about K323.91 billion] that currently sits in FCDAs across the banking sector is from export proceeds.

“That should improve immediately the levels of foreign currency liquidity in the market once executed.”

Concerned with foreign exchange scarcity, RBM announced on Friday re-introduction of the mandatory sale of export proceeds, a move meant to ease foreign exchange liquidity challenges.

In a statement on Friday, RBM Governor Wilson Banda said the central bank has noted tightness in the foreign exchange market; hence, the decision to re-introduce the mandatory sale of export proceeds to ADBs.

In 1994, RBM introduced an export incentive scheme that allowed exporters to retain export proceeds in their FCDAs.

It started with a retention/conversion ratio of 10/90 and has been adjusted downwards until it was abolished in March 2015.

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