Proceeds from tobacco this year coupled with donor inflows will be key to anchor the value of the local currency, the Malawi kwacha, during the lean season, economic commentators have said.
Blantyre-based Nico Asset Managers Limited, an investment management and advisory firm, has said this in its latest monthly economic report for August 2013 that the timing of donor inflows will be vital to stabilise the kwacha, cautioning that any likely delay will be damaging to the economy.
“The proceeds from the end of the tobacco market ing season will continue to help stabilise the value of the currency in the short run. However, there is a risk in the delay of donor aid inflows. The timing of the donor inflows will be critical in the lean season,” says the firm in the report, commenting on several economic highlights in August and beyond.
At the close of the 2013 tobacco marketing season, Malawi earned $361.7 million from the crop, an amount which represents 103 percent increase over last year’s earnings, according to final figures compiled by the Tobacco Control Commission (TCC).
Such earnings at auction floors way above the $178 million earned last year, when Malawi witnessed one of the worst tobacco seasons characterised by recurring market suspensions and poor tobacco prices, among others challenge.
“Foreign exchange reserves have increased compared to last year. Significant donor inflows estimated at 40 percent of the 2013/14 budget will help to support the domestic currency value as well as Reserve Bank forex reserves,” says the economic report.
It observes that the forecast of the foreign exchange reserves which has been increased from $154 million in 2012 to $291 million in 2013 will also help stabilise the exchange rate.
The firm also quotes the Economic Intelligence Unit (EIU) which it says has forecast a significant increase in Malawi’s exports by 4.8 percent, an increase from 2.5 percent shrunk in 2012.
Nico Asset Managers say such an a projected increase in imports should also help in the stabilisation of the exchange rates as there will be a corresponding lower demand of foreign exchange and a corresponding higher supply of foreign exchange.
Commenting on the possible impact of a such an exchange rate, the firm indicates that stable exchange rate will likely boost the ability for companies to better plan their various expenditures and expected costs.
“A stable exchange rate increases price transparency. Businesses and households are better able to compare prices of goods and services without the distorting effects of high exchange rate volatility,” says Nico Asset Managers.
On international relations, the firm has said Malawi is expected to remain in good terms with major donors, namely the United States (US), the United Kingdom (UK) and the European Union (EU).
As such, the company says this should see Malawi continuing to receive donor aid flows.
“Improved inflow of donor funds may help government sustain its reform efforts. Improved inflow of donor funds may also help government resume most of its development projects that were on hold and hence result in improved economic activity which might effectively improve private sector activity.”
Recently, one of the country’s biggest commercial banks, Standard Bank Malawi Limited, ruled out the possibility of the economy to experience massive depreciation of the kwacha as the economy drifts into lean season.
The bank’s director of global markets Frank Chantaya also said it expects the excess supply of dollars on the market to help the central bank, the Reserve Bank of Malawi (RBM), manage any likely excess in the demand for foreign exchange for the importation of fertiliser and other strategic imports at the height of the forth coming peak season.