Date Of Article: 5/30/2002
To Print This Story Goto File > Print
<<Back
Low foreign reserves bad sign for kwacha
By: Ayam Maeresa
Loita Investment Bank has said the slump in foreign exchange re-serves to US$165 million, which translates into a 2.7 months of import cover, is a bad signal for the kwacha’s strength against its major trading partners. The bank said in its latest market analysis report that the decline is in sharp contrast to an equivalent of 5.6 months of import cover in May last year. “This position is a concern because the economy always experiences a peak in its foreign exchange levels during this time of the year due to tobacco sales,” said Loita. This year’s development, to some extent reflects unstable circumstances pervading tobacco crop marketing, which has been charasterised by crossborder smuggling and erratic prices at the auction floors, said the bank. It said the decline has also been compounded by the “delayed and suspended” disbursement of foreign assistance. Major bilateral donors have since late last year withheld aid for balance of payments support citing corruption and overexpenditure in government as the reasons for withholding aid. The International Monetary Fund (IMF) has withheld US$47 million that should have been disbursed under the three-year Poverty Reduction and Growth Facility (PRGF). The IMF has said disbursements will resume on condition that government designed a budget that to a large extent answers the people’s aspirations as enshrined in the Poverty Reduction Strategy Paper (PRSP) and implements it fully. The bank said if the situation does not change for the better, a depreciation of the kwacha is inevitable. “This outturn will in the medium term impact negatively on the kwacha exchange rate, which of late has been stable against the US dollar and Zimbabwe dollar,” it said. The Reserve Bank of Malawi’s (RBM) Monetary Policy Committee (MPC) said in its minutes of a recent meeting that despite the depreciation during the quarter, the external competitiveness of the kwacha would suffer from exchange rate misalignments in Zimbabwe and South Africa. In the months ahead, developments the markets for oil and the US dollar would relatively be more important,” said the MPC. The mid rate for the kwacha has since the start of last month remained at K75.85 against the US dollar and K1.40 to the Zim dollar but has continued to depreciate against the South African rand, said Loita. The bank said the mid-rate for the rand is slightly above K7.70 from K7.40 a fortnight ago.
<<Back
© 2001-2002 Nation Publications Limited, All Rights Reserved