Perks M Ligoya: Safeguarding Malawi's foreign exchange reserves
Speech by Dr Perks M Ligoya, Governor of the Reserve Bank of Malawi, at the official launch
of the Exchange Control Manual, Blantyre, 29 December 2009.
* * *
President, Bankers' Association of Malawi
Chief Executives of commercial banks
Distinguished guests
Ladies and Gentlemen
Compliments of the season.
It gives me great pleasure to officially launch the Exchange Control Manual. On behalf of
Reserve Bank of Malawi and indeed on my own behalf, I welcome you all to this memorable
event.
Distinguished guests, ladies and gentlemen, the objectives of the official launch of the
Exchange Control Manual are three-fold:
a) To present the Exchange Control Manual to its ultimate users-authorized dealer
banks and the business community.
b) To assure exporters and importers that the Reserve Bank of Malawi is fully
committed to economic liberalization that it embarked upon some fifteen (15) years
ago.
c) To garner support and cooperation of banks and the business community in
ensuring prudent use of foreign exchange reserves.
In order to achieve these objectives, let me start by mentioning that the main challenge (and
particularly so in recent times) for Malawi as an emerging economy is the generation of
sufficient foreign exchange reserves to meet the economy's growing import demand.
Malawi's foreign exchange reserves are volatile due to the economy's over-reliance on
primary commodity exports and in particular a few agriculture exports. This reliance will
continue to undermine the country's foreign reserves position unless significant progress is
made in growth and diversification of exports.
While export diversification on its own may not be a panacea for an improvement in foreign
exchange reserves, the principle that export diversification can contribute to reducing
instability of export earnings is widely accepted. Thus, Government in its quest to mitigate
Malawi's external vulnerability and, more generally, the country's overall economic
performance and welfare, continues to take initiatives to promote export diversification.
The generation of adequate foreign exchange reserves is key to Malawi's growth prospects.
Apart from supporting the Malawi Kwacha exchange rate, reserves are also essential in
supporting economic growth through imports of industrial raw materials, agricultural inputs,
medicines and other basic necessities.
Government, in this regard, continues to undertake initiatives to boost and preserve the
country's foreign exchange reserves. One such initiative is the computerization of export
proceeds tracking system. We are all aware that in November 2008, the Bank rolled out the
Foreign Exchange Statistical Database System, which is now being used to monitor and
enforce repatriation of export proceeds to Malawi.
Imports have grown phenomenally in the past three years due to increased demand for
machinery and industrial raw materials, and most importantly, agricultural inputs particularly
fertilizer. Other imports have also registered a significant growth both in volume and value
terms. This largely explains the depletion in the country's foreign exchange reserves.
These developments have necessitated a review of the Exchange Control regime. You will
recall, Ladies and Gentlemen, that Exchange Controls in Malawi pre-date our independence
i.e. we had exchange controls before 1964 when Malawi became independent. The
Exchange Control Act has, thus, undergone several reviews and repeals over the years to
re-align it with dynamic macroeconomic developments and hence make it more relevant.
Ladies and Gentlemen, let me mention that the Exchange Control Manual being launched
today, has been prepared to act as a guide to authorized dealer banks in dealing with
exchange control issues. The Manual also addresses the issue of completing relevant
exchange control forms. These forms have been reviewed to conform to the 5th Edition of
International Monetary Fund's Balance of Payments Manual. Bankers, importers and
exporters will recall that we had numerous forms. These have now been harmonized and we
are now talking of three only.
The manual contains instructions on how authorized dealer banks should process Exchange
Control applications for, among other things, advance payment for imports: You will recall
ladies and gentlemen, that these have always been referred to Reserve Bank of Malawi for
approval. The Reserve Bank is now delegating this authority to banks to handle advance
payment applications of up to $20,000. Anything in excess of that value will however be
referred to the Reserve Bank of Malawi for approval.
Authorized dealer banks will find the manual to be useful not only in distinguishing between
current and capital and financial account transactions but also in determining the minimum
that is required in support of Exchange Control applications.
The Manual also reflects a commitment by Authorities to move from controls to a more liberal
regime. You will note, Ladies and Gentlemen, that most Exchange Control transactions that
hitherto required prior Central Bank approval no longer requires such action from the
Reserve Bank of Malawi.
The Manual also recognizes recent developments in the management of exports and export
proceeds in Malawi.
It is, therefore, important that authorised dealer banks exercise due diligence in processing
Exchange Control applications. Authorized dealer banks should also ensure consistency and
uniformity of policy implementation in carrying out duties entrusted to them through strict and
impartial application of Exchange Control instructions.
Banks are therefore encouraged to consult the Reserve Bank of Malawi whenever in doubt
with regard to the interpretation and implementation of exchange controls.
Trade liberalization ushers in new challenges in terms of Exchange Control administration. In
order to deal with these challenges, Government is working on further amendments to the
Exchange Control Act which will enhance penalties for offenders but, at the same time, allow
for more transparency and easier implementation of the Act. In order to effectively manage
the process, the Bank needs the cooperation and active participation of all institutions and
individuals gathered here.
Ladies and Gentlemen, I now have the singular honour to declare the Exchange Control
Manual officially launched for full application by authorized dealer banks effective
1st January, 2010.
I thank you all for your attention.