Anxiety over Malawi forex reserves as tobacco season closes

Some players in the Malawi economy have expressed anxiety over how the country’s economic authorities will manage the oncoming lean season from September to March next year without the local currency, kwacha, depreciating further.

This follows an announcement from the Tobacco Control Commission (TCC) saying the three of the country’s tobacco auction floors have closed leaving only Mzuzu Auction floors to sell out this year’s remaining leaf on the market.

The development marks the end of this year’s tobacco marketing season which has seen stability of the kwacha backed by earnings made from selling of the leaf.

The TCC said the Limbe auction floors was the first to close while Chinkhoma and Lilongwe floors closed on 1st August and  2nd August 2013 respectively and that so far 162.2 million kilogrammes of tobacco has been sold in the markets at an overall average of $2.14 per kilogramme.

Lipenga: Remains upbeat on Kwacha stabalisation
Lipenga: Remains upbeat on Kwacha stabalisation

The tobacco market regulator said in its latest update that the leaf has so far earned the country $348.6 million. The
dollars have assisted to boost Malawi’s ever depleted forex reserves which according to Alliance Capital improved with import cover standing at $452.7 million, representing 2 months and 17 days as of last week.

But some players on the market believe the season closure and pressure to spend more by authorities in preparation for the election year will throw off-track the economic progress achieved through policy reforms and adherence to tight fiscal practice.

They say with the conclusion of tobacco sales it will be hard for government to establish other avenue to generate revenue in foreign exchange apart from praying for more and quick sympathy from donors to help keep the fragile kwacha afloat.

However, Finance Minister Ken Lipenga said government is very optimistic of further stabilisation of the kwacha even after the tobacco season although there will be increased imports needs in preparation for the next agricultural and festive seasons.

Malawi requires $181.1 million per month of foreign exchange reserves, translating into a minimum three month requirement of $564.3 million.

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