Financial Market Dealers Association of Malawi (Fimda) has urged authorities to prudently use IMF $189 million (K155 billion) financial support by channeling the funds to sectors that will generate foreign exchange and ensure improved future supply.
Fimda president Mclewen Sikwese said this on Tuesday in his reaction to the International Monetary Fund (IMF) approval of the funds, which are expected to boost foreign exchange reserves and build confidence.
The funds are part of the IMF’s $650 billion special drawing rights (SDR)—monetary reserve currencies aimed to supplement reserve assets of member countries—to boost global liquidity amid the Covid-19 pandemic.
Said Sikwese: “What is key is how we choose to utilise the resources where we can either move them into areas that have the potential to generate foreign exchange or create an import substitution opportunity.”
He said the SDR allocation will help bolster the foreign exchange reserves position at a time there is increased pressure to settle government foreign obligations.
“In the short-term the bump up in the reserves position improves the capacity of the central bank to either intervene in the market or comfortably settle the country’s foreign liabilities,” said Sikwese.
Malawi’s gross official reserves have lately been under pressure as the country’s demand for imports largely because of the Covid-19 has been rising.
The official forex reserves for July 2021 decreased to $404.18 million or 1.62 months of import cover from $424.99 million, an equivalent of 1.70 months of import cover in June 2021.
SDRs are being distributed to countries in proportion to their quota shares in the IMF which means about $275 billion is going to emerging and developing countries while low-income countries, including Malawi will share $21 billion.
In a written response on Tuesday, IMF resident representative Farayi Gwenhamo said the allocation will help to improve the foreign exchange reserve position and provide liquidity to support the authorities’ fight against Covid-19.
“In terms of handling the resources, we are asking authorities to ensure transparency and accountability,” she said.
Gwenhamo said as per the announcement by the IMF, the SDR allocation has come into effect on Monday and Malawi is expected to receive the resources in the next few days.
Ministry of Finance spokesperson Williams Banda said the financial support is timely as Malawi is working on recovery plans.
On his part, Malawi University of Business and Applied Sciences economics professor Betchani Tchereni said the money will be key in stabilising the macroeconomic environment.