Malawi’s economy continues to face significant disruptions due to unstable foreign currency reserves, which are unable to guarantee uninterrupted procurement of fuel, the National Oil Company of Malawi (Nocma) has revealed.
The State-owned company has also attributed its poor performance over the last four years to the erratic availability of forex.
Nocma Deputy Chief Executive Officer Micklas Reuben told the Budget and Finance Committee of Parliament in Lilongwe on Friday that the company has been unable to meet its recommended fuel supply targets due to persistent forex challenges.
“The products we purchase require settlements in foreign currency and, currently, we are facing forex challenges that have impacted fuel imports into the country,” Reuben said.
He also highlighted limited storage capacity as another challenge.
On the other hand, Reuben disclosed that Nocma is working on expanding the Strategic Fuel Reserves in Blantyre, Lilongwe and Mzuzu, with a combined storage capacity of 60 million litres.
He said the State-owned company aims to double this storage capacity by 2025.
The reserves, which were commissioned by former president, the late Bingu wa Mutharika, following a 2011 nationwide acute fuel shortage, have sporadically dried up in recent years.
Towards the end of 2023, lack of forex crippled fuel imports, resulting in long queues at pump stations as motorists scrambled for the little that was trickling into the country.
In a presentation during the meeting with members of Parliament, Nocma officials further identified rising global commodity prices as another challenge beyond their control.
They also noted efforts to reduce costs through the use of the railway, which has recently started gaining momentum.
Looking ahead, the company is considering constructing a pipeline in the long term to substantially reduce transportation costs.
In response to the presentation, Deputy Chairperson for the Budget and Finance Committee, Ishmael Mkumba, announced that Parliament would engage with officials from the Reserve Bank of Malawi (RBM) regarding the issue of forex challenges.
“Very soon, we, as a committee, will meet with RBM officials and the forex issue will be one of the matters to discuss. We will explore ways to assist Nocma in addressing the challenges it faces,” Mkumba said.
Malawi’s import cover continued to deteriorate in the past 12 months, reaching $591.51 million or 2.37 months of imports in June 2024, down from $729 million or 2.92 months in the same month last year.
Import cover is the number of months of imports that can be covered with foreign exchange reserves available at the central bank of a country.
In a recent interview with The Daily Times, economist Marvin Banda said the reserves are -$137.49 million worse off than they were last year in June, indicative of the effects of a continuously weakening economy.
He said policy shocks that led to currency realignment have yet to manifest tangibly the promises of devaluation, which was touted to boost economic activity as part of attaining the Extended Credit Facility.
Banda was, however, quick to point out that what Malawi has experienced is a feeble blip post-devaluation gain, which was used not to increase development efforts but to mitigate further shocks of other macroeconomic fundamentals.
“The contrasting picture painted by production statistics and the import cover are soberingly indicative that either our exports are of minuscule value… or that we are producing for local consumption, with little being exported for forex,” Banda said.
In February 2024, Malawi’s import cover deteriorated to $143.60 million, representing 0.57 months, the lowest level since August 2012, when the cover dwindled to 0.5 months.
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