The Malawi kwacha has lost a staggering 20 percent against the dollar since January, an indication that the value of imports and foreign debts have increased while local incomes have relatively diminished.
Reserve Bank of Malawi (RBM) data on forex bureau exchange rates as published on its website, indicate that the kwacha has retreated from an average K359 on January 4 to K438 on April 10 this year. This is in defiance of donor inflows and the tobacco marketing season which opened on March 12.
Tobacco, the country’s main foreign exchange earner, has cumulatively by week ending April 5 raked in $16.7 million (K7 billion), according to figures from Auction Holdings Limited (AHL).
However, regardless of the tobacco forex inflows, RBM daily money market data indicate that the official gross foreign exchange reserves have generally declined. The reserves have declined from an equivalent of 1.17 months on December 27 2012 to 0.89 months on January 25, and marginally rose to 0.95 months on April 5, still way below the recommended three months import cover.
A local economist Henry Kachaje, responding to a questionnaire on Saturday, said the kwacha is unlikely to settle any time soon.
“Our export base is narrow and largely dependent on primary commodities whose prices are not market-determined but buyer-determined. The value of the proceeds the country gets from tobacco exports is relatively low to be able to effectively counter the downward free-fall of the kwacha. Without a diversified export base, it will be difficult to arrest the sinking of the kwacha.
“The donor inflows will help but not much. Sometimes the figures of the donor package include a huge administrative expense that does not necessarily flow into the economy. The changes in the monetary policy were necessary and the reforms had to be done because we had very few choices. But I think we could have negotiated better terms with the International Monetary Fund (IMF). Of course the monetary policies must be accompanied by a good fiscal management policy for them to be effective,” said Kachaje.
Recently the RBM Governor Charles Chuka was quoted in the press saying that currently, Malawi still has little reserves as measured by the month import cover. He, however, banked his hopes on the tobacco
marketing season which he said will help beef up available foreign reserves and help Malawi import critical commodities such as fuel and drugs, among others.
Chuka on Tuesday last week ,also hailed the release of $19.6 million (about K8 billion) by the IMF following its executive board’s approval of the second review.