Government defends currency swap
Malawi’s Finance, Economic Planning and Development Minister, Goodall Gondwe, has defended the recent government transaction that involved the purchasing of government debt denominated in kwacha by the Preferential Trade Area (PTA) Bank using dollars.
Gondwe said the deal, worth $250 million (about K118 billion), does not mean that Malawi has heavily borrowed from the Africa’s trade and development financial institution but is simply a swap “and nobody will lose out”.
The minister was under fire on Monday in Parliament by opposition members who faulted the transaction, saying it lacked Parliament blessings.
Malawi Congress Party (MCP) spokesperson on finance Alexander KusambaDzonzi accused government of flouting the Public Finance Management Act by undertaking the currency swap deal with PTA Bank.
The parliamentarian was supported by People’s Party (PP) spokesperson on finance Ralph Jooma, who also queried the transaction and warned that sooner or later the dollars that have been “borrowed” will have to find their way out of the economy.
But Gondwe allayed the fears and explained that following the deal, PTA Bank paid to the Reserve Bank of Malawi (RBM) in dollars on behalf of Treasury.
Said the minister: “Instead of us owing RBM, we owe PTA Bank. They paid that borrowing from RBM in dollars. That is called currency swap because nobody is losing out.
“RBM bought dollars and you could also say PTA bought Malawi assets from RBM, so it is a swap and there is no borrowing.”
He touted the transaction as having hugely aided the economy as it has stabilised the local currency, which lost almost a third of its value between September and December last year.
The currency traded at around K390 against the dollar before sharply depreciating to K520 per dollar in December 2014.
The exchange rate that was allowed to float freely, beginning May 2012, has stabilised to a mid-rate of K450 this week, according to figures from Authorised Dealer Bank (ADBs).
“The swap transaction also has helped to increase official foreign exchange reserves to more than $620 million, the highest ever reached since independence,” said Gondwe.
In the latest Monetary Policy Committee (MPC) minutes released last week, RBM Governor Charles Chuka said gross official reserves stood at $597.91 million or 3.13 months of imports as at end December 2014 compared to $403.16 million or 2.11 months of imports in December 2013.
“The increase was due to both purchases from the market and sale of government debt to external institutional investors. Consequently, the kwacha appreciated against major currencies in December 2014,” he said.
