Malawi kwacha threats loom after tobacco revenue slump: Forex shortage hits

Threats to the Malawi Kwacha loom due to seasonal surge in demand for imports.

A financial analyst says the growing demand is a normal seasonal occurrence.

This week the local unit showed it was slowly but surely losing its two-year long grip, losing ground against major trading currencies.

The gradual fall in the currency, while seen as seasonal contrasts sharply with the last two years of the former  Democratic Progressivr Party (DPP)  administration when it remained stable while imports grew.

While authorized dealer banks quoted the MWK as trading at K739.527 to the US dollar and K44 against the South African rand, the reality is that they will soon start to ration.

The move is in preparation for the lean forex season.

On the black market, traders quoted the Malawi Kwacha at 800 against the US dollar and 50 against the Rand.  The local currency has also marginally lost its grip against the British pound, trading at 944.793 from around 937 last month.

“We’re in the demand season. With farming about to reach its peak, the country is importing a lot of fertilizer and other inputs. At the same time most of the trading partners, including South Africa are opening up their borders after the Covid-19 lockdown. This will pile pressure on the Kwacha as the demand curve for foreign currency grows to match imports,” said one financial dealer in Blantyre, the country’s banking and financial services hub.

Production of tobacco, Malawi’s major foreign currency earner fell by 31.3% this year on account of too much rain, the Tobacco Commission said earlier this month.

The slump in production triggered a 26.4% decrease in the tobacco seller’s revenues. That led to revenue from tobacco sales falling to US$174.5M compared to US$237M in 2019, said the auctioneer AHL.

Tobacco accounts for about 50 to 60% of Malawi’s total foreign currency earnings and roughly 15% of GDP.

Malawi’s forex spring occurs during the tobacco selling season when inflows of US dollars is high and demand for imports traditionally low.

The forex spring tends to dry in the summer as the  imports curve rises.

President Lazarus Chakwera, in his first State of Nation Address in Parliament called for concerted efforts to diversify Malawi’s reliance from tobacco to ensure economic sustainability.

Meanwhile, according to press reports, some manufacturing companies have scaled down their production as they cannot import raw materials due to the shortage of foreign exchange in the country’s commercial banks.

On Wednesday, Malawi Confederation of Chambers of Commerce and Industry head of membership development and communication Tione Kafumbu called for urgent action to address the forex situation.

In the second quarter ending June 2020, Reserve Bank of Malawi indicated that official foreign exchange reserves dropped to $646.4 million from $699.9 million recorded in the previous quarter.

Follow and Subscribe Nyasa TV :

Sharing is caring!

0 0 vote
Article Rating
24 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
jocker
1 month ago

We are yet not to cry coz this is just the beginning of sorrow whereby one currency is going to be introduced. Keep watching and pray to our heavenly Father before these things come to pass we should be in the right hand of God the Almighty

Namaste
Namaste
1 month ago

The Kwacha is a lost cause. These fake levels are just window dressing by the draconian reserve bank which still think it can dictate exchange rates. We need to let the currency fully float so that the right signals are sent to the market and the market can evolve proper.

Amos
Amos
1 month ago

Amos

Medson
Medson
1 month ago

Nyenkhwe Tonse government
Over spending due to stupid promises
Muwona kuti mpanga bwanji.

Nyusesi
1 month ago

Chakwera and Nonse alliance mwalephera kuyendetsa boma. And your bloated cabinet plus the legion of presidential advisors are the reason why our currency is weakening because Chakwera is sending a signal that he has so much money to squander on unnecessary positions and issues.

MLOWOKA CHIKUMBUTSO
MLOWOKA CHIKUMBUTSO
1 month ago

The only thing we need to do is, the small farmers are getting any profit ? And if we don’t focus on our agriculture then the problem will be forever.

Peter
Peter
1 month ago

Tonse. ….chaka sichinathe….hee bolanso ku aiguputo…..Tonse. …kuona nyekhweee

Bentby from Chigunda Dwangwa

everyone who study currency knows and understand that our kwacha, has withstand the storm of colona. and most of investors understands that in long run [few months] kwacha will strengthen against us dollar. currently us dollar is holding its gain because of the cash us dollar has pumped into us economy to hide the severity of corona damage on their economy. another reason why us dollar is holding its strength is because investors are afraid of second wave of corona virus due to the increase of colona cases in some Europe nation.

Bauleni12
Bauleni12
1 month ago

When you get your degree from a chimbudzi university you spew such nonsense. Go back to school!!

Bentby from Chigunda Dwangwa
Reply to  Bauleni12

every currency is weakening against dollar at the moment, you will be suprised in few months when the tides changes.

Shahid
1 month ago

Very nice article keep it up

Okay
Okay
1 month ago

Ng’ombe za tonse kulephela kukoka ngolo ya aMalawi

ERUTU
ERUTU
1 month ago
Reply to  Okay

Dziko lonse lapansili ndalama yabvutika kwambiri chifukwa cha COVID-19.

Penyekulani maso nkumawona zapatali osati zapafupi 💪🏿🇲🇼

shares
Read previous post:
Pressure mounts on Minister Chimwendo to act on police officers who abused women

Home Affairs Minister Richard Chimwendo Banda  has come under immense pressure from several sectors of the general public, demanding him...

Close