The Reserve Bank of Malawi (RBM) says it expects the $84.3 million the country has received from the World Bank to have a significant impact in boosting the country’s foreign exchange reserves.
The World Bank last week released the long-awaited $84.3 million budgetary support to Malawi.
RBM spokesperson, Mbane Ngwira, said the central bank expects the Malawi kwacha to remain fairly stable for the rest of 2017.
The Malawi kwacha-dollar exchange rate has remained broadly stable during the past 12 months, reflecting fiscal discipline and efforts by the RBM to absorb excess liquidity from the banking system as well as maintenance of positive real interest rates
This is the first and longest time the kwacha has been allowed to find its international value and augers very well with continued decline in inflation.
In its August 2017 monthly economic brief released last week, portfolio management firm, Nico Asset Managers, said kwacha is expected to depreciate in the short term following the closure of the tobacco marketing season.
Nico further said the kwacha is expected to depreciate due to significant current account deficits and weak foreign direct investment inflows.
But Ngwira said although the 2017 tobacco marketing season has come to an end, RBM sees the kwacha remaining stable.
“Exchange rate outlook this year is far much better than last year. The central bank’s official reserves stood at $758.73 million or 3.63 months of imports as at September 8, 2017. This is significantly higher than the amount of reserves observed during the same month last year.
“For the country as a whole, foreign exchange reserves amounted to $1,084.7 million or 5.20 months of imports,” Ngwira said.
He said the U$84.3 million from World Bank does not only support foreign exchange build-up but also helps the country to consolidate confidence of the private sector to invest for growth.
Ngwira said for a while now, RBM has observed that demand for foreign exchange in the market has been matched by supply and that the market is able to clear.
“The disbursement of budget support, therefore, comes at the right time, soon after the closure of the tobacco selling season. RBM is, therefore, confident that in 2017 and at least into the foreseeable future, Malawi is not likely to experience the usual seasonal lean period in terms of foreign exchange availability, thereby cementing the current stability of the exchange rate,” Ngwira said.
According to Ngwira, the budgetary support from the World Bank is a testimony and clear indication that Malawi’s development partners are willing to support the recovery efforts and policies of the Malawian authorities.
He said the authorities are committed to continuing with policies that will usher in the much longed for inclusive economic growth.
“The Reserve Bank of Malawi has demonstrated capacity to enhance its open market operations, without raising interest rates, to ensure that the kwacha remains stable. The short-term goal of the Reserve Bank is to hold official foreign reserves of not less than three months of imports at all times while the medium-term goal is to build reserves up to six months of import cover by end-2018.
“To achieve this, Malawi must start producing more for the export market. With inflation falling, and interest rates coming down, the business community is urged to take advantage of the improved macroeconomic situation to invest in growth potential sectors and grow their enterprises,” he said.
Ngwira said RBM is committed to enhancing the export earning capacity of Malawi through its support to the Export Development Fund (EDF), whose focus is on diversifying the country’s exports base.
“Gone are the days when Malawi relied on tobacco for its export proceeds, days when tobacco selling season closure implied the beginning of a lean season in forex availability.
“At $212.5 million, tobacco export earnings in 2017 represent just one month of imports for Malawi. Therefore, the remaining 11 months are supplied by foreign exchange earnings from other products and services,” he said.