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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Mtengo mwasya
Guest

Mwapindulanji?

Imraan Sadick عمران صادق
Guest

Cashgate is to blame

marvel chikondi
Guest

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

The Truthful One from the West
Guest
The Truthful One from the West
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… Read more »
Maso ambeta 1
Guest

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

mery julius
Guest

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

Kapoli Thengo
Guest

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.

kawanga
Guest

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

Chikadzakowani
Guest
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… Read more »
nosisye
Guest

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 !!!

wpDiscuz

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