Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

MALAWI

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: December 7, 1995.
Exchange Measures
Restrictions and/or multiple currency practicesThe staff report for the second review under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria with Malawi states that as of August 16, 2006, Malawi maintained an exchange restriction (as evidenced by the private external payment arrears) and a multiple currency practice under Article VIII (arising from the significant spread between the commercial bank exchange rate and the rates at foreign exchange bureaus). (Country Report No. 06/445)
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Malawi is the Malawi kwacha.
Exchange rate structure
DualEffective August 16, 2006, the exchange rate structure was reclassified to dual because there is a significant spread between the commercial bank exchange rate and the rates at foreign exchange bureaus.
Classification
Managed floating with no predetermined path for the exchange rateBeginning January 2006, the temporary administrative measures introduced in 2005 to deal with the drought that required exchange market participants to trade at the rate determined by the Reserve Bank of Malawi (RBM) were removed because the country had a good harvest season. The spread between the buying and selling rates may not exceed 2%. Foreign exchange bureaus may conduct spot transactions with the general public on exchange rates negotiated with their clients. Official intervention focuses on meeting the target on the net foreign reserves position and smoothing operations, and takes into account seasonal fluctuations.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsPayments to and receipts from nonresidents may be made in any convertible currency traded in Malawi or in kwacha through nonresident accounts.
Controls on the use of domestic currency
For current transactions and paymentsCurrent transactions between a resident and a nonresident must be settled in foreign exchange, except transactions through nonresident accounts, which may be settled in kwacha.
For capital transactionsPayments to and receipts from nonresidents with respect to capital transactions may be made through the banking system, but foreign exchange must be converted into kwacha.
Transactions in capital and money market instrumentsYes.
Transactions in derivatives and other instrumentsYes.
Credit operationsYes.
Use of foreign exchange among residentsIt is prohibited to quote, demand, or accept foreign currency for goods or services sold or procured in Malawi.
Payments arrangements
Regional arrangementsMalawi is a member of the RIFF.
Administration of controlExchange Control (EC) is administered by the RBM under the authority of the MOF.
Payments arrears
PrivateThe arrears accumulated as a result of imports of maize during the drought period were cleared on June 1, 2006.
Controls on trade in gold (coins and/or bullion)
On domestic ownership and/or tradeResidents may purchase, hold, and sell gold coins for numismatic purposes. Only the monetary authorities may hold or acquire gold at home or abroad in any form other than jewelry.
On external tradeOnly the monetary authorities may conduct external trade in gold. Imports of gold in any form other than jewelry require licenses issued by the Ministry of Trade and Private Sector Development (MOTPSD) in consultation with the MOF; such licenses are not normally granted except for imports by or on behalf of the monetary authorities and industrial users.
Controls on exports and imports of banknotes
On exports
Domestic currencyUp to MK 3,000 may be exported.
Foreign currencyResidents may export foreign currency up to the equivalents of $3,000, $4,000, and $5,000, applicable to tourist, medical, and business travel, respectively. Nonresidents may export foreign currency up to the amount that they imported, less any amount spent.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyResidents receiving foreign exchange from exports of goods and services or any other bona fide economic activity may open and maintain foreign currency accounts (FCAs), for which the terms and conditions are set by the bank involved. Balances in FCAs may be used to make foreign payments and transfers satisfying exchange control regulations.
Held abroadNo.
Accounts in domestic currency held abroadResidents and nonresidents are not allowed to hold offshore accounts denominated in kwacha.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedThese accounts are permitted, but authorized dealer banks (ADBs) are required to report them to the RBM.
Domestic currency accountsThese accounts may be credited with the proceeds from sales of any convertible currency, with authorized payments in kwacha from abroad, and with transfers from other nonresident accounts. These accounts may also be debited to make payments to residents of Malawi for any purpose, transfer freely to other nonresident accounts, and make payments to account holders temporarily residing in Malawi.
Convertible into foreign currencyBalances in these accounts are freely remittable.
Blocked accountsCredits to and debits from these accounts require prior authorization, which is normally given to be invested in an approved manner. Interest earned on balances may be transferred to the account holder’s country of residence.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsImporters are free to choose any method of payment, and imports may be paid for in kwacha to an appropriate local nonresident account or in any convertible currency. When imports arrive in the country and payment is due, the importer must submit to an ADB an application for foreign exchange. Such applications must be accompanied by relevant importation, customs, and preshipment inspection documents.
Advance payment requirementsPrepayment for imports is not encouraged.
Advance import depositsAdvance import deposits are not required by law; however, ADBs may require them as a banking practice, depending on the mode of payment (e.g., LCs).
Documentation requirements for release of foreign exchange for imports
Preshipment inspectionA clean-report-of-findings certificate is required. All imports into Malawi amounting to the equivalent of $2,000 (f.o.b.) and more are subject to preshipment inspection.
Import licenses and other nontariff measures
Negative listImports of clothing and uniforms designed for military or police use; radioactive substances; mist nets for the capture of wild birds, wild animals, and live fish; compound products suitable only for use as animal fodder; eggs of domestic or wild birds; live poultry (including day-old chicks); and meat dieldrin, aldrin, and table salt require specific licenses from the MOTPSD. Specific import licenses are usually issued within one week of application and are normally valid for six months.
Open general licensesMost imports are subject to OGLs, including imports from Commonwealth and WTO member countries.
Other nontariff measuresYes.
Import taxes and/or tariffsCustoms tariffs are ad valorem and range up to 30% of c.i.f. value, with a weighted average of about 15%. Customs tariffs on all items with MFN status range from zero to 25%. Tariffs on items from the COMESA region range from zero to 13%. Selected government imports are exempt from customs tariffs. Imports are also subject to a surtax of up to 17.5%.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirements
Surrender to authorized dealersADBs are required to convert 40% of foreign exchange received from exports immediately on receipt at the prevailing buying exchange rate, and to credit the kwacha proceeds to the customer’s account. The remaining 60% may be credited to the exporter’s FCA. There are no restrictions on the time period during which such balances may be held. The 40% conversion requirement also applies to dollar proceeds from tobacco and tea auctions. In the case of certain tobacco proceeds, the conversion requirement is 100% until the seller has fully repaid any bank overdraft.
Financing requirementsYes.
Documentation requirementsExporters are required to complete a customs declaration form or an export form.
Export licenses
Without quotasYes.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersADBs are authorized to provide foreign exchange, without reference to the exchange control authorities, for all current invisible payments.
Investment-related paymentsThese payments are allowed, provided the investment is registered with and the foreign loan has been approved by the RBM.
Payments for travel
Indicative limits/bona fide testThe limits are the equivalent of $3,000 a trip for tourist travel and $5,000 a trip for business travel. Foreign exchange in excess of these limits is granted on proof of need. Subsequent issues of foreign exchange to the same individual with respect to private or business travel are granted on proof of need.
Personal payments
Quantitative limitsADBs may approve up to the equivalent of $1,000 for family maintenance and alimony payments.
Indicative limits/bona fide testIndicative limits apply to payments for medical treatment.
Foreign workers’ wages
Quantitative limitsThe limit on remittances is two-thirds of current net earnings.
Credit card use abroad
Prior approvalYes.
Indicative limits/bona fide testTravelers’ use of credit cards abroad is subject to indicative limits.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirements
Surrender to authorized dealersForty percent of total proceeds are converted into local currency on receipt, and the balance may be held in FCAs.
Restrictions on use of fundsFunds may be used only in accordance with exchange control regulations.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsn.a.
Surrender requirementsn.a.
Controls on capital and money market instrumentsInward transfers of non-debt-creating capital are not restricted. Outward transfers of capital are controlled mainly for residents.
On capital market securities
Shares or other securities of a participating nature
Purchase abroad by residentsEC approval is required.
Sale or issue abroad by residentsEC approval is required.
Bonds or other debt securities
Purchase abroad by residentsEC approval is required.
On money market instruments
Purchase abroad by residentsEC approval is required.
Sale or issue abroad by residentsEC approval is required.
On collective investment securities
Purchase locally by nonresidentsThese transactions must be registered with the EC.
Purchase abroad by residentsEC approval is required.
Controls on derivatives and other instruments
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
Controls on credit operationsBorrowing abroad by residents requires prior exchange control approval, which is normally granted provided the terms of repayment, including the servicing costs, are acceptable.
Commercial creditsControls apply to all these transactions.
Financial credits
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsEC approval is required.
To residents from nonresidentsEC approval is required.
Controls on direct investment
Outward direct investmentEC approval is required.
Inward direct investmentThese transactions must be registered with the EC.
Controls on liquidation of direct investmentRepatriation of investment is permitted when the original investment was made with funds brought into the country.
Controls on real estate transactions
Purchase abroad by residentsYes.
Purchase locally by nonresidentsThese transactions must be registered with the EC.
Controls on personal capital transactions
Loans
By residents to nonresidentsYes.
To residents from nonresidentsBorrowing abroad by residents requires prior EC approval, which is normally granted, provided the terms of repayment, including the servicing costs, are acceptable.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsADs authorize payments on the basis of guidelines issued by the RBM.
Settlements of debts abroad by immigrantsThese transactions require EC approval.
Transfer of assets
Transfer abroad by emigrantsNo controls apply for the transfer of assets that were legitimately acquired.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Lending to nonresidents (financial or commercial credits)EC approval is not required for lending to nonresidents who conduct business in Malawi.
Lending locally in foreign exchangeYes.
Purchase of locally issued securities denominated in foreign exchangeYes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsYes.
Liquid asset requirementsCertain liquid asset ratios must be met.
Credit controlsThese are subject to prudential regulations.
Open foreign exchange position limitsYes.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Exchange arrangementJanuary 1. The temporary administrative measures (introduced in 2005) that required exchange market participants to trade at the rate predetermined by the RBM were eliminated.
August 16. The exchange rate structure was reclassified to dual because there is a significant spread between the commercial bank exchange rate and the rates at foreign exchange bureaus.
Arrangements for payments and receiptsJune 1. The arrears accumulated as a result of imports of maize during the drought period were cleared.

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