Malawi ’s net remittances have been on a downward spiral necessitated by declining inflows as well as those taken out of the country for other imports, Reserve Bank of Malawi data shows.

The net remittances, the money that remains as foreign exchange that can be used to finance imports, have since declined from about $21 million (about K22 billion) in 2019 to about $6 million (about K6.2 billion) in 2022.

Economic experts argue this is an indication of their declining relevance as a foreign exchange earner.

In a written response on Monday, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni observed that since people are shunning away from official channels when transacting, Malawi is losing a lot.

He said: “Many people in diaspora are no longer remitting using official channels such as banking system.

“They make some arrangements with family and friends and end up transacting.”

Tchereni said net remittances have been a reliable means through which certain amounts of foreign exchange reserves were realised.

“Having this area lowered is a huge challenge for the macroeconomic variables, especially the exchange rate. We seriously need to consider ways of bringing all remittances through the official channels,” he said.

However, Catholic University of Malawi head of economics Hopkins Kawaye observed that the declining remittances might strengthen monetary transmission by providing a substitute for the remittances on the demand side.

He said: “Households and small firms receiving the low remittance inflows would be more financially constrained and, therefore, their spending decisions become linked to the supply of bank credit.”

Kawaye said this might induce increased demand for bank loans which fosters expansionary monetary policy.

According to data calculated by the World Bank based on RBM data, average monthly net remittances have declined from $21 million (about K22 billion) in 2019 to $16 million (about K17 billion) in 2020, $13 million (K13 billion) in 2021 and $6 million (about K6.2 billion).

But Kawaye explained that the decline in remittances from 2019 to 2020 could be attributed to the Covid-19 pandemic, which necessitated lockdowns and crippled production capabilities of most economies, thereby affecting income earning activities of most people around the globe.

While most economies opened up in 2022, he said the disruption of the supply chain caused by the pandemic could not catch up with demand, which also pushed up prices globally, thereby reducing purchasing power of people’s income.

“This means the income of the people in real terms in the diaspora is also decreasing; hence, declining remittances,” he said.

Meanwhile, remittances to low and middle-income countries grew by an estimated five percent to $626 billion in 2022, which is lower than the 10.2 percent increase in 2021.

According to the International Fund for Agricultural Development, over 50 percent of remittances are sent to households in rural areas where 75 percent of the world’s poor and food-insecure live for improving their livelihoods, increasing their resilience and achieving their sustainable development goals.

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