Import cover slightly eases

The Reserve Bank of Malawi (RBM) import cover slightly eased to $454 million or 2.38 months of imports at the end of April from $478 million or 2.54 months the month before, according to a report.

A treasury economic report for April 2014 by the Malawi Stock Exchange (MSE)-listed NBS Bank based on RBM figures, the import cover is based on the central bank’s revised monthly import cover calculating figure of $191 million from $188.1 million.

However, NBS Bank said the month’s import cover—the number of months of imports that could be paid for by a country’s international reserves—is $72 million above the RBM’s target of maintaining two months of import cover or $382 million.

“Reserves would normally grow during the tobacco marketing season, but the absence of donor budget support and election-related expenses may be contributing to the drop in reserves,” said the bank’s report.

Malawi’s monthly import cover calculating figure has jumped 1.5 percent, meaning that the economy’s usage of foreign exchange for imports is fast increasing.

This is could be in view of the availability of foreign exchange which has pushed the import cover to above the internationally recommended three months threshold over the past months, signifying a measure of adequacy to hedge against a crisis.

In economics, one common rule of thumb is that foreign exchange reserves that can cover three months’ worth of imports, now about $573 million in Malawi, are adequate.

RBM spokesperson Mbane Ngwira earlier told Business News the upward revision of the import cover calculating figure is a result of looking forward based on how much foreign exchange has been used at a particular period.

He said while some could interpret that the appetite for imports is going up, it could also not be entirely true that it is just a projection of a particular period.

In the month, according NBS Bank, the kwacha gained value against all the major trading currencies in April, gaining 2.68 percent against the dollar compared to 2.89 percent gain in March.

As at the end of April, cumulative tobacco sales brought in $50.31 million, compared to $72.39 million during the same period last year.