Chakwera told to devalue Kwacha

…Malawi Kwacha needs currency alignment, says World Bank


As Malawians continue to face economic hardships worsened by the recent 25 percent devaluation of the Malawi Kwacha, the World Bank has told the Lazarus Chakwera administration to further re-align the Kwacha.

Speaking to the local media, the bank’s acting manager in the country Efrem Chilima proposed that Malawi should adopt a more flexible exchange rate management system which allows the exchange rate to be determined by supply and demand, and in the case of Malawi could see the Kwacha getting further devalued.

“The government can restore short-term macro stability through a package of reforms such as adopting a more flexible exchange rate management system, fiscal consolidation and ensuring debt sustainability. Together, these will provide confidence to the market and can unlock a more positive private sector response,” said Chilima.

He  defended the re-alignment of the Kwacha arguing that the exchange rate needs to reflect reality.

Commenting on the proposal through the local media,  economist Betchani Tchereni  argued that letting the Kwacha to be determined by forces of demand and supply would hurt ordinary Malawians since they earn money in the local currency.

He said: “This can be okay from the World Bank colleagues since they earn in foreign currency but, trust me, it won’t be alright with the rest of us on the ground. It is not simple. A slight depreciation translates into inflation.”

Another economist, Milward Tobias, also speaking to the local media, argued that further devaluation of the Kwacha would further worsen the country’s problems. Tobias said Malawi should focus on improving supply of foreign currency on the formal market.

Meanwhile, the Reserve Bank of Malawi through its manager responsible for public relations Dave Ndege has said the bank already realigned the exchange rate to its market rate.

The Chakwera administration devalued the Kwacha in May this year to realign the exchange rate with economic fundamentals as part of the government’s quest to  get a new International Monetary Fund (IMF) Extended Credit Facility (ECF) programme.

Following the devaluation, prices of basic commodities, which were already high, have further skyrocketed, pushing up the cost of living. Businesses are also complaining that the cost of doing business has increased following the devaluation and many are pushing this cost to consumers, many of whom have seen their income being effectively reduced due the same devaluation.

President Chakwera recently described devaluation as a necessary evil.

Devaluation of Kwacha was a necessary evil – Chakwera