Kwacha In Biggest Tumble Yet; Hard Times Ahead – Economists

Kwacha In Biggest Tumble Yet; Hard Times Ahead – Economists

The Reserve Bank of Malawi (RBM) has announced the biggest yet adjustment in the trading value of the kwacha against the US dollar, devaluing the selling rate at 43.29% - from K1180.29 to K1700 effective November 9.

In a statement released on Wednesday it says the devaluation stems from an assessment conducted by the bank that showed supply and demand imbalances in the market despite recent adjustments through an auction system.

It further says spot-checks on the market indicate the newly approved rate was already being used to clear import bills and that there was exploitation of the differences in the rate on different markets, an apparent reference to the high cost of the dollar on the black market.

Governor Dr. Wilson Banda says, “The Reserve Bank of Malawi will closely monitor developments in the market to avoid disorderly behaviour among market players that may cause excessive volatility.”

Economist Dr. Betchani Tchereni has described the development as a necessary evil, saying if it was not done there would have been scarcity of imported products on the market as Malawi is a predominantly importing country.

“So, you can have low prices without commodities or higher prices with commodities; we really had to make a choice in that regard. A bitter pill had to be swallowed,” he observed, “Remember, we are a predominantly importing country, so let’s not fool ourselves that our kwacha is strong.”

He says fuel is one of the prices whose price is likely to go up.

On the other hand, Gilbert Kachamba, an economist with Catholic University tells Zodiak Online the devaluation will not help matters

“There will be consequences on the prices of goods as people will need more kwachas to buy the same amount of goods. There will be a rise in prices of goods which will burden Malawians,” he says.

Kachamba describes the devaluation as ill-timed, saying it is not a solution to the current shortage of forex.

“We need to find long term solutions, like increasing the amount of goods that we export,” he says.

Consumers Association of Malawi Executive John Kapito says the devaluation would have been avoided had the government exploited different opportunities to expand the export market.

“It is the biggest price Malawians will have to pay for having a government that does not listen,” claims Kapito.

The kwacha has been on a steady decline in the last few months since the RBM introduced an auction system involving local commercial banks to determine its value.

Scarcity of forex is already biting hard on Malawians with recurrent fuel shortages and failure by the government and commercial traders to import essential goods such as fertilizers and medical drugs.

There has been speculation that the International Monetary Fund put forward devaluation of the kwacha among the key conditions to reach a four-year agreement with the Malawi government on its request for an Extended Credit Facility worth $174 million aimed at stabilizing the economy.

The Executive Board of the IMF will on December 15 meet in Washington, D.C. to decide on whether to approve the package following an earlier staff-level agreement between the local authorities and an IMF mission team.

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Last modified on Thursday, 09/11/2023

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