Malawi’s foreign reserves position at 0.93 months

Malawi’s gross official reserves sunk to a lowly $175 million as at March 8 2013, raising fears of continued scarcity of foreign exchange in the formal financial market to help meet the country’s imports of critical goods.

Such reserves position is an equivalent of 0.93 months of import cover, according to the daily money market statistic published by the Reserve Bank of Malawi (RBM).

That amount is way below the $188.1 million which is the monthly demand for foreign reserves for importing strategic goods such as fuel, medicine and fertilisers.

A Lilongwe-based banker on Monday cautioned that the current foreign exchange position for Malawi is unsustainable. The banker said it is likely going to compromise the country’s ability to import critical commodities such as drugs, among other key imports.

Said the banker, who opted for anonymity: “Unless a miracle happens for Malawi to generate more foreign currency this year, I see the future not promising because as it is the case now, demand for foreign currency is just too huge to match the available supply.”

According to RBM statistics, as at March 1 2013, Malawi’s gross official reserves stood at $164 million which was an equivalent of 0.88 months of import cover.

Gross official reserves exclude private sector reserves which include Foreign Currency Denominated Accounts (FCDAs) and Authorised Dealer Banks (ADBs) own foreign exchange positions.

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 low foreign exchange position persists during the course of the year, it might bolster the sharp fall of the kwacha to international major currencies and fuel imported inflation and escalate the already high cost of living biting Malawians hard.

RBM Governor Charles Chuka said last week that at the peak of the lean season, foreign exchange reserves stood at $169.4 million, equivalent to 0.9 months of import cover in February 2013, as the RBM continued to support the importation of strategic commodities.

He said he is banking hopes on the onset of the tobacco marketing season which will likely unleash more foreign currency into the system hence stabilising the kwacha somewhere mid this year.

In its economic report for the month of February, Nico Asset Managers Limited, a Blantyre-based investment management and advisory firm, said it expects donor inflows to continue providing support for the currency during this lean season until the tobacco marketing season which commenced last week.