Market analysts say the country’s foreign reserves are on their way to recovery owing to the resumption of the International Monetary Fund – IMF’s – Extended Credit Facility – ECF – programme on Monday.
According to Alliance Capital Limited, expectations are high that the country would experience greater foreign exchange inflows that would in turn help it to adequately import essential commodities.
“This marks a significant milestone for President Joyce Banda’s administration as it signals full confidence by the Bretton Woods institution in the reforms and strategies undertaken by her new government,” indicates Alliance Capital in its weekly report.
The July 23 approval by the IMF’s Executive Board of the new three year ECF programme worth US$ 157 million, about MK40 billions gives hope as donor aid inflow would resume, according to Alliance capital.
Currently at US$ 242 million which represents under one month import cover, Malawi’s capacity to purchase goods on the international market has for long been way below the internationally accepted three months requirement.
The IMF Board’s decision would enable an immediate disbursement equivalent of 19.5 million dollars to Malawi.
Alliance Capital says in the report, “The good news from IMF might well see the local unit appreciating and the central bank will likely regulate demand by, among other things, toying around with the bank rate and liquidity reserve requirement until the currency stabilizes at the optimal level.”
For the past three years, Malawi has failed to maintain even a single month worth of foreign reserves, a development which led to shortage of essential commodities including fuel and drugs in public hospitals.