Malawi’s gross official reserves improved to $206 million as at 26 April 2013, raising hopes for increased availability of foreign currency to meet the country’s strategic imports.
Such a reserve position is an equivalent of 1.10 months of import cover, according to the daily money market statistic published by the Reserve Bank of Malawi (RBM).
Malawi’s monthly foreign reserve requirement is pegged at $188.1 million, an upward revision from a monthly demand of $129 million.
A Lilongwe-based banker yesterday said the improvement in the foreign reserve position is healthy for the country, saying it will help sustain the firming of the kwacha to other international currencies.
Said the banker: “With tobacco sales in progress, it is noticeable that relatively more foreign currency is trickling in and it is clear on the market that our currency [the kwacha] is gaining more value day by day as supply of foreign cash has relatively improved on the market.”
Tobacco accounts for over 60 percent of Malawi’s total export earnings and this year government expects tobacco proceeds to hit $300 million up from $177 million earned in the 2012 season.
According to RBM statistics, as week ending 19th April 2013, the country’s gross official reserves stood at $190 million which was an equivalent of 1.01 months of import cover.
Since the start of this year, foreign reserve position for the country has been precarious, settling way below the recommended three months import cover, which is internally recommended.
Gross official reserves exclude private sector reserves which include Foreign Currency Denominated Accounts (FCDAs) and authorised dealer banks (ADBs) own foreign exchange positions.
RBM Governor Charles Chuka told Business News in an exclusive interview at the weekend that he expects significant improvement in the country’s foreign reserve position backed by the inflow of tobacco foreign currency as well as strong package of both monetary and fiscal policy implementation.
Said Chuka: “The reserve level is improving. On present prospects, therefore, we should meet our targets of two months import cover and about 14 percent inflation by end December, 2013.”
The RBM boss said the improvement in foreign reserve build-up should help strengthen the value of the kwacha which is already appreciating against major international currencies.
Malawi is currently dogged by a thin export base, but needs foreign currency to meet import bills, to service foreign debt as well as to pay government expenditures overseas, among others.
Thus, if the improvement in the inflow of foreign currency persists, it might help bolster the value of the kwacha to other currencies in the short to medium term and help contain imported inflation and in the process cushion the already high cost of living biting Malawians hard.
In its economic report for the month of April, Nico Asset Managers Limited, a Blantyre-based investment management and advisory firm, has said it expects donor inflows to continue providing support for the currency during this lean season until the next tobacco marketing season which commenced in March.