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Malawi Currency’s Decline Triggers Concern


Financial analysts are concerned by the continued depreciation of Malawi’s national currency. The kwacha is trading at about 520 to the dollar, down from 410 in September.

Economists said this largely reflects sustained uncertainty about whether donor aid to one of Africa’s poorest countries will resume. Many donors had suspended support in the wake of last year’s “Cashgate” scandal, in which more than $30 million was looted from government coffers, the British auditing firm Baker Tilly concluded in a report released last month.

Economists also linked the decline to the end of marketing season for the country’s main cash crop, tobacco, which contributes more than 60 percent to Malawi's foreign exchange earnings.

Prominent Malawi economist Thomas Munthali told VOA he was troubled by the rate of decline, saying there was a strong chance of a "very high inflation level that would erode the purchasing power. And this would escalate into pressure of workers asking for higher wages.

"And at the same time," he said, "the industry will be faced with tough times because the interest rates are likely to go up."

Prices are climbing

Prices of some goods and services already have started rising. For example, private traders have increased the price for Malawi’s main food crop, maize. Recently, the immigration department tripled the cost of processing Malawi passports.

The Malawi Energy Regulatory Authority has attributed its recent 6 percent increase in the price of fuel to the kwacha’s depreciation.

But Finance Minister Goodall Gondwe told VOA there was no need for Malawians to panic because “this is not the first time for the kwacha to fall.”

During much of 2012, Gondwe said, "there was much faster depreciation than we are experiencing now. Do not forget that. We started from 160 [kwachas to the dollar] to about 460. So this is not new for Malawians themselves."

The kwacha has been unstable since 2012, when the administration of former President Joyce Banda floated the currency to let market forces determine its value.

It is more stable during tobacco marketing season, between March and September, when the country generates a lot of foreign exchange from tobacco sales.

Solutions considered

Gondwe said the government is considering short- and long-term solutions to slow the depreciation.

"The short term is that we are looking for resources and we are about to get them to bring into the market to increase the demand for the Kwacha," Gondwe said. "In the long term, Malawians will have to work hard, to diversify and produce more products to export. Everybody knows that."

Gondwe denied media reports that the government is planning to revert to fixing the currency to the dollar, as was the case during the late President Bingu Mutharika’s administration.

In its latest report, the country’s leading financial advisory firm, Nico Asset Managers, predicted the kwacha will continue to depreciate until February of next year.