Monthly import cover revised to $250 million
Malawi’s foreign exchange monthly requirement has been revised upwards by 20 percent from $209 million (about K167 billion) to $250 million (about K200 billion), signifying a prevailing excess demand for foreign currency amid low supply.
Import cover is the number of months that a country can seamlessly import goods and services using the accumulated international reserves.
The decision by the Reserve Bank of Malawi (RBM) to revise monthly import cover is a reflection of foreign exchange market dynamics characterised by huge demand for foreign currency which is exerting pressure on the local currency as seen by the fall of the kwacha against other foreign currencies.
As of yesterday, the kwacha-which had stabilised at a rate of K740 to the US dollar for years was selling at around K820 in most authorised dealer banks (ADBs) and at a more depreciated rate of around K935 in foreign exchange bureaus that we sampled.
RBM last revised the Malawi’s import cover in May 2015.
The adjustment saw the monthly foreign exchange consumption going up from $191 million (about K153 billion) to $209 million in view of a corresponding surge in foreign exchange consumption.
An international development expert Peter Yakobe yesterday said the huge demand for foreign exchange is symptomatic of low supply of foreign cash due to a combination of factors, including the recent drop in remittances into the country as a result of Covid-19 pandemic.
Said Yakobe: “What is clear is that Malawians are currently scrambling for a little available foreign currency on the market in order for them to continue sustaining their imports of various goods and services and make sure that raw materials for their goods are imported.
“This has exerted more demand and eventually making the kwacha to weaken against major currencies such as the US dollar.”
RBM figures show that official gross reserves hit $790.28 by January 31 2019, an equivalent of 3.78 months of import cover.
However, the reserves had sunk to $402 million (1.9 moths of import cover) at the end of the first quarter in 2021, compared to $565.5 million (2.7 months of imports) recorded at the end of the preceding quarter and $773.2 million (or 3.7 months of import cover) at the end of the first quarter in 2020.
Commenting on the current foreign exchange situation, RBM spokesperson Onelie Nkuna told The Nation last week that it is, however, unfortunate that the business community has taken advantage of this and has increased prices way more than the depreciation, and this is uncalled for.”
Malawi continues to rely on tobacco as a main source of foreign currency but the crop is facing a suppressed global demand due to anti-smoking campaigns among other factors.
