The Reserve Bank of Malawi’s (RBM) sales of foreign exchange, particularly US dollar to the market dropped to $33.9 million (K5.6 billion) in December 2011 from $109 million (K18.9 billion) the month before. This is according to the central bankÃ¢â‚¬â„¢s latest monthly economic review.
The drop is a clear signal of the extent of the foreign currency squeeze the countryÃ¢â‚¬â„¢s economy is facing.
At the same time, the latest review posted on RBMÃ¢â‚¬â„¢s website (www.rbm.mw) shows that foreign currency payments also dropped to $5.9 million in December 2011 from $19.6 million the month before.
During the review period, the RBM bought $29.6 million in December, a drop from $90.7 million in November.
Ã¢â‚¬Å“This was explained by a decrease in offers of foreign exchange from the local market coupled with a drop in purchases from project funds,Ã¢â‚¬Â reads the review in part.
According to the RBM, project funds totalled $15.9 million while foreign exchange purchases from the market amounted to $10.6 million with project funds mainly consisting of $7.2 million support to the education Sector Wide Approach (SWAp) by the British Department for International Development (DfID) and $4.2 million Norwegian food aid.
Gross official reserves comprising RBM reserves, commercial banks’ reserves and Foreign Currency Denominated Accounts (FCDA) have been on the downward spiral.
In October, when the tobacco sales were still in progress, the reserves were at $250.1 million (K42 billion).
In November, the reserves dropped further to $203.8 million (K34.2 billion) and settled at $190.2 million in December 2011.
As at now, according to the latest figures from the RBM, the reserves were recorded at $213 million, an equivalent of 1.67 months of import cover, way below the internationally recommended reserves of three months.
MalawiÃ¢â‚¬â„¢s foreign currency reserves position, hugely beefed up by tobacco revenue and donor inflows has been precarious for the past two years or so.
The shortage has been compounded by a 30 percent slump in foreign exchange revenue from tobacco to $293.7 million from $416.4 million in 2010.