The Reserve Bank of Malawi (RBM) says it is at peace with the current foreign exchange position equivalent to 2.07 months of import cover, despite being below the internationally recommended three months.
Malawi’s gross official reserves calculated at mid-January were estimated at $389 million [K175 billion, at the current exchange rates], which is equivalent to 2.07 months of import cover, according to published RBM official figures.
The country requires $564.3 million [K253 billion] in foreign exchange to help import goods and services for three months, since monthly foreign exchange consumption is pegged at $188.1 million [K84 billion].
Gross official reserves exclude private sector reserves which include foreign currency denominated accounts (FCDAs) and Authorised Dealer Banks (ADBs) own foreign exchange positions.
RBM spokesperson Mbane Ngwira told Business Review on Tuesday that from November 2013, the central bank has been targeting two months of import cover as a rule of thumb which he described as “credible.”
“After we issued a [monetary] policy statement somewhere in November 2013, we said our target will be two months and we have been managing that as we have been able to pay for fuel, fertiliser and pharmaceuticals,” he said.
Ngwira was reacting to Business Review query on the economy’s gross official foreign exchange position at slightly over two months of import cover as the economy wobbles deep into the lean season where demand for foreign exchange outstrips the supply.
“We haven’t moved away from targeting three months cover, but we are now looking at a situation. For instance, when donors pull out of donor aid for a month, it could have been unrealistic to target three months cover unless up to March somewhere when tobacco dollars start coming in,” he said.
Generally, Ngwira said Malawi’s foreign exchange availability has improved on recent past years when the country was grappling to import basic items such as fuel due to the precarious availability of foreign currency.
Last Friday, the International Monetary Fund (IMF) approved the immediate disbursement of $20 million (about K9 billion) under the three-year Extended Credit Facility (ECF) which many believe will help thwart the recent massive depreciation of the kwacha.
Finance Minister Maxwell Mkwezalamba said last Sunday was optimistic the IMF decision will unlock the delayed budgetary support from the Common Approach to Budgetary Support (Cabs).