By Kingsley Jasi:
The foreign reserves trajectory took a dip in the third quarter of the year, closing the month of August at $549.8 million, which represents a 2.2 months of import cover, a latest Reserve Bank of Malawi (RBM) financial market update indicates.
The central bank has, however, assured the market that the monetary authorities are in control of the situation, stressing there is no reason to panic.
The country already faces a protracted forex crisis that has continued to deteriorate this year.
And the turn from June points to a much worse outlook as it curves down, reaching a level lower than last year’s position during the same period.
During a corresponding quarter last year, the country had reserves worth $658.9 million at the end of August, representing 2.64 months of import cover.
When contacted, RBM spokesperson Mark Lungu said the current situation is caused by an upsurge in the demand for forex this time as compared to last year.
“The country’s demand for foreign exchange has been on the higher side this year compared to the previous years and this explains the current situation. However, this should not cause panic in the market as everything is under control,” Lungu said.
Some cross-border traders we spoke to in Lilongwe said the situation has seriously affected their businesses. An observation of the forex situation shows the reserves have been fluctuating below the three months threshold since January, peaking at $610 million at the end of May.
With the monthly average of 2.28 months of import cover in the third quarter, this is lower than the 2.7 months cover that was observed in the same quarter last year.
Foreign exchange pressure continues to manifest on the market, reported at K2,200 in some banks against the official rate of K1,751 while on the informal market the dollar is selling at above K2,600.
However, recent remarks by RBM Governor Wilson Banda indicated no plans to realign the Kwacha to the market rates, a key objective in the current Extended Credit Facility with the International Monetary Fund. Banda said there was a lot of speculative pressure on the exchange rate, leading to what he hinted was artificial exchange rate.
Meanwhile, monthly trade updates by the National Statistical Office (NSO) in the quarter show imports were recorded at $904 million against exports worth $323.5 million, leaving a deficit of $580.5 million.
However, that deficit is lower than the $653.3 million estimated in the previous quarter when exports were $124.5 million against imports worth $777.8 million.
The country’s annual exports are expected to be affected by reduced agricultural output this year, a situation that promises forex challenges.
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