Fall of Malawi Kwacha shoot up prices: Finance Minister Gondwe promises to shore up Kwacha

The ongoing depreciation of the kwacha, Malawi’s national currency, to the U.S. dollar has sent the prices of some consumer goods and services in the country skyrocketing.

Gondwe:  Finance Minister says government will find a solution

Gondwe: Finance Minister says government will find a solution

“The clothes I import are now double the price I used to sell them for,” Fanny Lunda, who imports men’s and women’s clothing from China, told Anadolu Agency.

“They have become unaffordable to locals because the kwacha is weaker,” she said.

The value of the kwacha has fallen by over 20 percent against the greenback over the past two weeks, hitting an all-time low of 520 kwachas to the dollar.

In May, June and July, the kwacha had traded at 380 to the dollar. But after the end of Malawi’s tobacco selling season in August, it fell swiftly, reaching 450 to the dollar.

By the first weeks of November, the kwacha had reached an unprecedented 520 to the dollar, where it remains.

Mike Banda, an importer of second-hand cars, said business had taken a major blow as a result.

“We used to import three or more cars when business was good, but we have cut down to one,” he told AA near the Blantyre Shopping Mall.

“You cannot easily get U.S. dollars from banks, so we source the unit from the black market, where it is expensive,” he explained.

The base lending rate (the cost of borrowing money) at the country’s commercial banks was raised on Thursday from 35 percent to 38.5 percent.

This means it will be more expensive to borrow from the banks, so that, in many cases, small-scale businesses will not be able to afford to access capital.

The recent 20-percent currency depreciation has led to soaring goods and services prices.

Gasoline prices jumped from 796.90 to 856.70 kwachas per liter, while diesel prices rose from 805.50 to 865.90 kwachas.

A can of Coca-Cola that sold last week for 193 kwachas now sells for 200 kwachas.

More price hikes are expected this week.

However, prices for maize – Malawi’s staple food – have remained stable at K4,500 (roughly $8.65) per kilogram due to large market supply.

Prices for other household items have gone up, too, creating a situation that economist warn could send ripple effects across the economy.

“Minibus fares could go up as well because we respond to fuel pump price adjustments,” Costly Kamange, executive member of the Minibus Owners Association, told AA.

Due to factors including the recent currency depreciation, the Reserve Bank of Malawi (RBM) has raised its December 2014 inflation estimates from 20.5 percent to 25.4 percent.

-Bleak-

Financial analysts say the depreciation was expected because the currency is heavily tied to tobacco, the country’s main export crop, accounting for some 60 percent of its foreign trade earnings.

“Every tobacco season, the kwacha gains against major currencies. But when the selling season is over, the currency struggles,” Chikavu Nyirenda, a lecturer in economics at Catholic University, told AA.

“We expected this depreciation, as the government does not control much of [the currency’s value],” he explained.

Market analysts link the depreciation to several factors, including currency speculation and suspended donors support.

Some experts warn that the continued depreciation of the local currency will push up lending rates and trigger further inflation.

They warn of high job losses, a slowdown in exports and the closure of factories that cannot import raw materials.

Experts warn that a continued fall of the kwacha could also result in people lining up for basic goods, such as bread and fuel.

“If demand falls, we will not sell and produce more and we will not enjoy economies of scale,” said Fredrick Changaya, operations and marketing director at Candlex Limited, which produces fast consumer goods such as soap and candles.

He said the fall would certainly push up prices and reduce people’s disposable incomes and, therefore, reduce demand.

“Due to the fall of the local currency, we are also being forced to borrow at exorbitant interest rates to meet our import requirements,” Changaya told AA.

He called on the RBM to implement policies, including rationing foreign exchange, so businesses might benefit from the little foreign currency available on the market.

Finance Minister Gondwe, for his part, has promised to take measures to shore up the kwacha.

“We are doing something about it,” he told AA in a telephone interview . “I want all businesses to know that we will find a solution.”

He insisted, however, that forex rationing was not a viable option.

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31 thoughts on “Fall of Malawi Kwacha shoot up prices: Finance Minister Gondwe promises to shore up Kwacha”

  1. Mtengo mwasya says:

    Mwapindulanji?

  2. marvel chikondi says:

    ANTHU ENANU NDI OMVETSA CHISONI NDITHU. NTHAWI ZONSE MUMAFUNA KULEMBA ZONYOZA OSAYAMBA MWAONA CHAGWETSA DZAYE NCHANI KUTI NJOBVU ITHYOKE NYANGA.

  3. The Truthful One from the West says:

    I respond to Nkasai who called me to give solutions. May be Nkasai does not know that by criticising wrong policies one is also providing solutions. Goodall, who prides himself of having worked for IMF, knows or ought to know that the Kwacha loses value in a lean period and should have been prepared. The fact that he taken by surprise shows some incompetency on his part. Secondly although the prices of basic and essential commodities and services are skyrocketing making life very difficult for majority of poor Malawians Goodall Gondwe has not come out to admit that some of DPP Govt economic policies are not working. If he admits we are ready to put to him some very workable proposals. Certainly increasing university fees by 400% is detrimental to long term human resources development particularly in the health sector where there is great shortage of personnel 50years after Malawi became independent. If I were Minister of Finance I would introduce modest windfall tax on companies that make abnormal profits to fund investment in human resource development especially the health sector. Wndfall tax is not discrimination.Goodall knows the sectors where abnormal profits are being made. Increasing fees and charges by over 300% is evidence of failure of policies.
    Let me assure Amutchona that I do not hate Gondwe. I am pointing out that this man is failing the country and exacting high cost on the majority of poor Malawians. Gondwe and DPP knew or ought to have known that donors will not soon resume budgetary support but they went ahead to promise Malawians the good life. They have to deliver. Again does Goodall know that Malawi’s gini coefficient is very high and if he knows what is he doing about it?

  4. Ng’ombe ya tche*** yukanika kukoka ngolo. Dziko lili mmanja mwa agalu,

  5. mery julius says:

    mesa paja mumati zinthu zitsika mtengo lero zikukwera ndiye voti yathu yapindulanji?

  6. Kapoli Thengo says:

    This minister has gone beyond his best before date. 76 years old, when did he learn economics? 1956?

    Malawi is a pathetic country run by crooks and embiciles.

  7. kawanga says:

    Namate mtengo wamafuta wadutsa pamene unali kale just check you will see for yourself

  8. Chikadzakowani says:

    Goodall cannot expect to fix the Kwacha artificially at MWK140 to US$1 as he did during a good part of Bingu’s first term. This was the time Malawi’s problems began. Because the US$ was unreasonably cheap, a lot of useless imports poured into the country, and we are paying the price for that up to now. He now needs to get back to basics: Let the Kwacha be ruled by market forces, aggressively control imports to conserve our meagre forex, while at the same time aggressively pursuing forex generating activities such as improving tourism, increasing the export of other crops such as legumes and fruits, attracting deposits from the diaspora (why don’t we have a diaspora affairs department up to now?), encouraging high quality local professional qualifications (like ICAM is doing), introducing export subsidies instead of the iron sheets and FISP subsidies, e.t.c. On mining we also need to be much more serious – whatever happened to our rich rare earth deposits? When are going to start earning forex from them? Mining proceeds should not be diverted into private offshore accounts for old men.

    If we set our mind to it we can shore up our currency. However, the problem is that we expect to continue doing business as usual and still expect things to change. The DPP promised to hit the ground running, but it seems to me that 6 months down the line they are still hanging in the air! – they are yet to hit the ground…

  9. nosisye says:

    This myopic, backwards, the so called Malawi country has not seen anything yet.By this December the so called Malawi Kwacha will be almost 1000 to a dollar.Why cry now!!! We do not put people in position,power basing on nepotism,trabalism,Put people in power basing on priciples and merit.The just ended general elections in Malawi there were brilliant presidential candidates from which good choices could have been made.But alas this Malawi thing GOD gave it eyes but it cannot see..It is not anyones fault.Do not cry now !!!

  10. MMALAWI says:

    MFUSO;kodi mphini yobweleza imatani?
    YANKHO:ina imanyeka mpaka chilonda ina imawala
    MFUSO:tili pati?

    amalawi tirimbe yathu mphini yanyeka ndipo timva kuwawa sitidati mvuto.minister f finance tabwereza nothng will change.amene adapanga ma plan ya zero budget siyemweyu ndi bingu lero zusiyana pati.chipani chomwe chija ma mp omwe aja 3/4 nduna zonzija.tinya

  11. mate says:

    tilira pyooooo!!! root cause JB.

  12. Namate says:

    price of fuel has never increased this time. Mtengo wamafuta wabwererera pamene unali asanasise. Avoid telling pple lies but when it jumps from there it when we shall say fuel wakwera.

  13. Jabulosi says:

    Let Prices of imported consumer goods Go Up further so that Malawian mind set is changed. WHY SPEND ON CONSUMPTION FROM NGONGOLE???? NGONGOLE SHOULD BE FOR PRODUCTION!!!!!EXPENSIVE CLOTHES ,CARS, WHAT FOR????? THINK OF BEING PRODUCTIVE FIRST BEFORE CONSUMING!!!! DO NOT CONSUME THROUGH NGONGOLE!!!!!!!

  14. Mojamoja says:

    What is the mater with DPP? they found this economy in good shape, there was a three months cover for forex, fuel was every where, now they have destroyed everything JB worked hard for. When JB took over the gov., there was no fuel, no forex , the whole economy was at a verge of collaps , but SHE FIXED IT!!!!. and now look at these monkeys, they come into power to destroy….what apity!

  15. Vuto lake ndilimenelo poti akulu adali president basi naneso ndikhala,mapeto ake akuilephela kuyendesa boma

  16. Nkasai says:

    Number 6,well give us a solution

  17. Kanthu Ako! says:

    “We were buying three cars now we can only buy one” really, cars are in short supply in Malawi?

    Why do Malawians not have their priorities right?

    And maize at K4,500 per kilogram?

    Malawians need to wake up, the whole population is to blame, wasting too much productive time on useless things. Elections were ages ago, people are still debating issues related to the elections, instead of being productive.

    Talk is cheap!!, anyone can talk.

  18. Our children have no future in this country. We can’t live in such unstable economy. For how long? Look at results of MSCE a pass rate of 54%. What will the 46% do if those that have passed can’t even get jobs? This county is already in hell and the old man up there does not even impress at all.

  19. vyazunguya Tukombo says:

    palibe cha nzeru apa

  20. kATWAFU says:

    DPP WOYEEEEEE

  21. The Truthful One from the West says:

    What I find laughable about Goodall Gondwe’s position is that he had to wait for the Kwacha to fall heavily before he would start thinking of taking preventive measures. An effective Minister of Finance would have foreseen this development and taken contingency measures. I am sure Gondwe contributed to DPP’s economic manifesto which promised Malawians a good life. However the blunt truth is that under DPP the cost of living is spiralling out of control. Almost every basic commodity is becoming expensive every day. I have always held the view that Goodall Gondwe is not as effective as Minister of Finance as he often portrayed. Some Malawians think that because he worked at IMF then he is a good economist. I beg to differ. Even his so called good performance from 2004 to 2009 was due to an active and vibrant MCP/UDF opposition that kept him on his toes. I have yet to see viable economic ideas from him to transform the economy. I have even grave doubts that he really understands the structure of the Malawi economy. Does Gondwe know the current Malawi gini coefficient? If he knows what is it? Is it high? I can go on. All I can say is that if it is high then most of the graduates from the community colleges to be set up by the DPP govt will remain unemployed. Even self employment being touted by Peter Mutharika’s DPP largely depends on sufficient demand for goods and services to be traded.The majority of poor Malawians should expect the prices of basic commodities to continue rising because Gondwe has no clue as to what he should do to stem the rise in prices.

    1. Baba wa Boyi says:

      Are you sure the responsibility co control this countrys isatiable apetite for unnecessary consumption of foregn goods is Gondwes? Is this the first time prices have gone out of control?

      I can see you took time to look at the theory, but you are barking up the wrong tree. Why are MCP/UDF not keeping Gondwe on his toes? is it because the did not keep him on his toes to start with.

      what you forget is, if something is damaged it takes longer to fix, it is easier to maintain as you go, which has not been happening since the last but one DPP government.

      We have a problem in Malawi of believing that it is better to get a new one, if the old one needs fixing, that is the mentality that is killing us.

    2. amutchona says:

      I may not be an economist (am finance guy) but what I know is that you cannot have creative accounting. A Minister of Finance cannot create worth where it does not exist. The reality is that the Malawi budget is subsidized to the extent of over 40% and most of the money comes in form of forex. With the forex now withheld, it does not require a rocket scientist to see what effect that has on the local currency.

      Am I the only one sensing your personal hatred for Goodal?

      1. kanchenga says:

        No i too

    3. Bristol says:

      Let’s be frank with ourselves. The kwacha usually depreciates from November or December every year. There is no donor support, hence the larger depreciation. Even if PP and MCP were ruling this country, the depreciation would have occurred. Let’s not blame APM or Goodall Gondwe but rather our economy has a small base dependant mainly on tobacco.

  22. Jelbin mk says:

    This is a big tragedy but if it was expected as other quarters wants us to believe then why didn’t the government take the measures they are talking about sometime back? And the fall’s percentage is too sharp if we confine it to the period that has past since the end selling season of tobacco,its only two months past and 20% fall of kwacha is uncalled for and inexcusable. Our worry is,where will we be in four months time ahead that’s before the next selling season?

  23. peter says:

    Kodi ameneyo ndi JB? A Malawi chenjerani ndi boma mwaika pa mpandoli

  24. MKWAPU says:

    ITS ALL THE FAULT OF THIEVES CASHGATERS LETS LYNCH THEM!!!!

  25. Kafyo says:

    Hard times ahead.

  26. J.C says:

    The Min Bus Owner should not say they respond to fuel pumps price adjustments.By the way why did you not respond to it when fuel price were reduced?

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