Gloomy outlook for Q2
Reserve Bank of Malawi (RBM) says the local unit will depreciate by about 2.2 percent in the second quarter (April to June 2021), a development that analysts fear could negatively impact the country’s macroeconomic indicators.
In the first quarter, the kwacha also depreciated by 2.2 percent, 0.2 percentages above the projected two percent by the central bank.
Consequently, RBM has also projected domestic fuel pump prices rise by four percent during the review period.
As of yesterday, the kwacha was trading at K796 against the US dollar at midrate, according to published figures from RBM website.
In an interview yesterday, market analysts Cosmas Chigwe observed that the projected kwacha depreciation in the second quarter against the traditional bountiful period with regards to foreign exchange, could put pressure on the country’s reserves.
He said: “It is projected that this tobacco season, less than $200 million (K159 billion) will be generated for.
“On the other hand, the increased opening up of economies amid the Covid-19 vaccinations should automatically mean increased imports for the country.”
Speaking separately, African Institute of Corporate Citizenship chief executive officer Felix Lombe said while the depreciation could be good news to farmers, earnings generated from the sale of tobacco would provide little relief to the country’s forex reserves.
He said: “I am, however, worried with this low import cover. In the next four months, government will go back to its Affordable Inputs Programme transactions and we will drain away the few dollars remaining.
“Diversification away from tobacco should have been done long ago.”
RBM figures show that gross official reserves fell to $410.16 (1.96 months of imports) as of end-March 2021 from $483.38 (2.31 months of imports) registered at the end of February 2021, $502.98 million (2.41 months of imports) as of end-January 2021, and compared to $574.26 million (2.75 months of imports) recorded at the end of last quarter of 2020.
By April 16 2021, gross official reserves had declined further to $394.28 million (1.89 months of imports).
The country’s import bill is estimated at K210 million (about K158 billion) per month.
Economist Betchani Tchereni observed yesterday that with the indication that the country’s foreign earnings is indeed too thin from overdependence on tobacco, without proper and urgent diversification into sectors such as mining, forex reserves will be registering a downward trend every year, which could fuel inflation and erod the welfare of the poor people.
Agriculture commentator Tamani Nkono Mvula observed that tobacco farmers suffer more because during the time (October to December )they buy inputs, the value of the local currency is high, making these inputs expensive but when selling their tobacco the local currency depreciates.
However, Farmers Union of Malawi president Frighton Njolomole said yesterday that while farmers don’t expect much impact on the benefits accruing from tobacco due to marginal depreciation of the kwacha, they do not negotiate with banks on the rate at which dollars earned should be exchanged.
“As a policy, tobacco farmers must be allowed to have foreign denominated accounts and be allowed to negotiate with banks on the exchange rate other than being given a default rate as is the current practice.”
