Wed, 06 Jul 2022

Malawi Faces Shortages of Foreign Exchange Currency

Voice of America
23 May 2022, 10:05 GMT+10

Blanyre, Malawi - Malawi is facing acute shortages of foreign exchange currency, forcing two international airlines to suspend some of their services in the country. The situation has negatively affected the operations of many more local and international cross-border businesses.

The latest monetary policy report by the Reserve Bank of Malawi indicates the county's official gross foreign exchange reserves in the first quarter of this year stood at $374.48 million, a drop from $429.17 million in the fourth quarter of last year.

The report also says private sector foreign exchange reserves also declined from $425.52 million last year to $391.49 million this year.

The situation has led to an acute shortage of foreign currency on the market, forcing foreign traders to halt or suspend some of their operations in Malawi.

Muhammad Gaffar, the owner of Gaffar Travels, a ticketing agency, and Gaffar Airlines, which operates flights from Johannesburg to Europe, said the shortage has seriously impacted his business.

"We are unable to issue tickets from Malawi to other countries, but we are only issuing tickets from Malawi from our other offices like, we have our head office in the U.K., we have an office in India, Pakistan and Turkey where we are issuing tickets for people traveling from Malawi,' he said. 'Until this forex issue is sorted, we are losing a lot of business in Malawi.'

Last week, Ethiopian Airlines and Kenya Airways suspended their ticketing system for local travel agents in Malawi largely because of the shortage of foreign currency.

Ethiopian Airlines said in a statement that the move was because the Reserve Bank of Malawi has been unable to remit money to their accounts due to dwindling forex reserves.

So, passengers traveling from Malawi on these airlines now must buy their tickets from agents in other countries.

Authorities say public hospitals are facing drug shortages because the government cannot procure essential medications.

Victoria Mwafulirwa, the general secretary for the Cross Border Traders Association of Malawi. told a local radio station that the situation has inconvenienced their businesses.

"For example, as you may be aware, Malawi does not manufacture packaging material. It has to be imported,' she said. For it to be imported, it has to be paid up front; for it to be paid up front, the forex must be readily available, which is not the case at the moment. And so, you will see that it hinders the progress and processes in every step of operations of different sectors."

Betchani Tchereni, a lecturer in economics at Malawi University of Business and Applied Sciences, said the problem is largely because of the country's failure to produce more products for exports.

"This is owing to our low export base, Number 1, and Number 2, the absence of donor assistance,' Tchereni said. 'You might recall that development partners, many of them, decided to pull out of the country and when that happened, it reduced the amount that is normally made available to the economy in terms of foreign exchange."

The foreign currency problem comes at a time when Malawi's major export, tobacco, provides more than 60% of the foreign exchange earnings.

Tchereni said this year's tobacco exports give little hope of making up for the shortfall.

"By the way, we are at the very beginning of the tobacco selling season, but the volumes are not that good; not many people went into cultivation of tobacco this year,' Tchereni said. 'And also you might recall that the storms that came destroyed a lot of our tobacco and many other farms' produce. So, that meant that we cannot realize as much."

Figures released this month from Auction Holdings Limited Group in Malawi show that tobacco sales for the past five weeks have dropped by 78% compared to the same period last year.

Winford Masanjala, the principal secretary for the Department of Economic Planning in Malawi, said the government is making an effort to address the foreign exchange shortages.

"A country needs to produce goods and services that it can sell to other countries,' he said. 'At the moment Malawi's desire and appetite for imports exceeds its capacity to export. That's why the government is saying in the next year to three years, we need to have some mines restarted in Malawi so that we can have alternative sources of foreign exchange."

The government says it hopes the foreign exchange reserve will start to increase once the International Monetary Fund resumes providing Malawi with what is called the Extended Credit Facility. The ECF provides financial assistance to countries with protracted payment problems. Negotiations for the ECF are expected to begin this Wednesday.

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