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The Reserve Bank of Malawi (RBM) has slapped a ban on all random buying of foreign exchange to save the few reserves the country has, but the move has not stopped the kwacha’s fast roll down the hill.
The local unit has hit above the K100 mark in commercial banks against the US greenback as proceeds from tobacco, tea and small chunks of donor inflows through project financing failed to top up falling foreign exchange reserves.
Commercial banks say reserves are down to below two months of import cover, a position economic analysts say is serious for a country battling to get donor sympathy two years after the International Monetary Fund (IMF) suspended its economic programme under the poverty reduction growth facility on concerns of high government spending.
About K7 billion for budgetary support is being withheld by donors and bilateral donors say there will only unfreeze aid if the IMF gives the thumbs-up sign.
Despite having problems with the donors, government expects to get almost two thirds of its K60 billion budget for the 2003/04 fiscal year.
The unit has been losing value by a K1 almost daily from K93.50 against the US dollar two weeks ago to K101 on Monday. It went down to K102 on Tuesday and K102.50 on Wednesday.
“Unless the central bank (RBM) comes in with some dollars, the currency will be going in that trend...it will persist if nothing happens,” said Webster Kaunga, president of Dealers Association of Malawi (Deama) in an interview in Blantyre.
He said there are no hopes of getting relief from tobacco proceeds since sales at the auction floors are almost coming to an end. Kaunga, a senior dealer with Stanbic Bank, said the unit’s fast depreciation was also fuelled by speculation in the financial market.
RBM governor Elias Ngalande told a local daily last week that the central bank was not going to inject dollars in the market because the depreciation was purely a result of market forces.
But on Tuesday Ngalande said in another interview the bank has restricted buying of foreign exchange through one’s bank account only to curb abuse that is helping to drain reserves.
“We are dealing with a crisis situation that necessitated us to put in the forex control measures,” said Ngalande, “It is at my discretion to decide when [they will be lifted].”
A recent economic analysis report by one of the major commercial banks says the recession gripping the economy will not get any better this year even if the government gets the greenlight from the IMF to get international aid.
With interest rates soaring above 45 percent, a 14 percent drop in industrial output, the economy has hit rock bottom and Finance Minister Friday Jumbe said during a pre-budget consultative meeting government found itself in a catch 22 situation.
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