Reserve Bank of Malawi (RBM) says it is banking on International Monetary Fund (IMF) disbursements for a flexible exchange rate regime.
In a written response to a questionnaire on Tuesday, RBM spokesperson Onelie Nkuna indicated that the IMF programmes would also help catalyse further support from other donors and help to further cushion the country’s foreign exchange position.
She said: “RBM is committed to maintaining a flexible exchange rate regime that reflects market fundamentals and supports economic activity.
“Discussions are underway with the IMF for a second tranche of the Rapid Credit Facility [RCF]. In addition, the country will start negotiations for a new multi-year arrangement with the IMF, in an effort to align to its new long term strategy [vision 2063], early next year.”
The stance by RBM comes in the wake of mounting pressure on the local unit, the kwacha, with the foreign exchange bureaus buying the US dollar at an average price of K820 and selling at an average price of K860.
RBM figures indicate that as August 28 2020, the middle rate is K751.3681 per US dollar.
The Balance of Payment (BoP) deficit has so far worsened to $139.8 million in the second quarter of 2020 from $112 million in the preceding quarter.
On the other, official gross foreign exchange reserves are also in decline as at August 31 2020, the reserves stood at 3.08 months of import cover or $642.86 million from 3.12 months of import cover or $651.41 million
“Though gross official reverses are lower, largely due to speculative tendencies and spillovers from the global recession and border closures in neighbouring countries, the foreign reserve position remains at healthy levels required to support the country’s imports,” said Nkuna.
Hopes on IMF also comesbarely weeks after Malawi forfeited $70 million (K53 billion) under the IMFs three-year Extended Credit Facility (ECF) programme following the new administration’s decision to cancel the programme.
While indicating that the cancellation of the programme will not affect resources already disbursed, IMF resident representative Ferayi Gwenhamo indicated earlier that the cancellation of the ECF programme implied that future disbursement, worth $75 million, under the remaining programme reviews will be cancelled.
This represent 33 percent of the country’s monthly import cover estimated at an average of $209 million based on RBM’s statistics. However, immediate past Finance Minister Joseph Mwanamvekha said the sacrificed money could have gone a long way to mitigate the impact of Covid-19.