The Reserve Bank of Malawi (RBM) ‘depleted’ $135.8 million (K22.8 billion) in November 2011 compared to $55.3 million (K9.2 billion) a month before.
The rise is a result of the increase in foreign currency sales to the market and government payments.
RBM’s latest monthly economic review for November 2011 posted on its website (www.rbm.mw) shows that the central bank sold $109 million (K18.3 billion) to the market and, at the same time, government used $19.6 million (K3.2 billion) for payments.
Government also paid $4 million (K672m) for the Kapichira Hydro Electric Power Scheme, which is currently under rehabilitation, and serviced $3 million (K504 million) in debts, said the report.
Overall, the RBM said gross official reserves comprising RBM reserves, commercial bank’s reserves and Foreign Currency Denominated Accounts (FCDA) slumped to $203.8 million (K34.2 billion) in November from $250.1 million (K42 billion) in October 2011. This reduced the import cover to 1.6 months from 1.9 months in October.
Ã¢â‚¬Å“The decline in gross official reserves was on account of seasonally high foreign exchange demand reflected in increased sales to the market,” said the RBM.
Malawi needs at least three months of import coverÃ¢â‚¬â€the ability of a country to import goods and services in a specified periodÃ¢â‚¬â€which is internationally recommended.
“Net foreign exchange transactions conducted at the Reserve Bank of Malawi resulted in a foreign exchange deficit of $45.6 million (K7.6 billion) in November 2011 after yet another deficit of $12.6 million (K2.1 billion) in October 2011,” reads the report.
It, however, said the supply of foreign exchange increased markedly to $90.2 million (K15.1 billion) in November 2011 from $42.7 million (K7.1 billion) the month before because of purchases of foreign exchange from the market and receipt of some project funds.
Giving a breakdown of the funds, the RBM said foreign exchange purchased from the market comprised of $43.1 million (K7.2 billion) from the tobacco auction floors and $22.9 million (K3.8 billion) from Authorised Dealers Banks (ADBs).
Project funds mainly constituted $11.4 million (K1.9 billion) from Norway, $2 million (K336 million) from the Irish Government for the support of the Farm Input Subsidy Programme and $4.8 million (K806 million) for the National Aids Commission (NAC).
Malawi’s foreign currency position is hugely beefed up by tobacco revenue and donor inflows, but has been fragile for the past two years or so.
Last year, the shortage was compounded by a 30 percent slump in foreign exchange revenue from tobacco which wires in about 60 percent of foreign currency earnings.
Donors under the Common Approach to Budget Support (Cabs) have been withholding budgetary support amounting to K65 billion in the 2011/12 budget because of a lack of programme with the International Monetary Fund (IMF). The $79.4 million three-year Extended Credit Facility (ECF) went off-track in June 2011.