Malawi exchange rate not sustainable, hurting the poor – Opposition MCP, DPP

The current exchange rate regime being used by Malawi is “not sustainable for a poor economy like Malawi”, opposition Malawi Congress Party (MCP)  and Democratic Progressive Party (DPP) said in parliament.

MCP  , through its legislator Willard Gwengwe said this when he read the official response of MCP to the 2012/13 midyear budget statement presented by Minister of Finance Ken Lipenga on February 15, that ordinary Malawians have faced untold misery from the after-effects of devaluation and the subsequent floatation of the kwacha.

The opposition condemned President Joyce Banda’s administration for liberalisation of the exchange rate regime as part of an economic reform package,  saying it is hurting.

The reaction comes after Press Corporation Limited (PCL) group chief executive officer Professor Matthews Chikaonda told a public debate that Malawi needs an exchange rate system that is competitive enough to grow the economy.

Chikaonda: There is no consultations

Chikaonda: We need an exchange rate that is competetite

And speaking in parliament, Gwengwe said: “The purchasing power of the rural masses has been significantly eroded as a result of the massive devaluation and subsequent floatation of the kwacha.”

Government devalued the local currency by 49 percent in May last year and adopted a floated exchange rate regime, apparently succumbing to pressure from the International Monetary Fund (IMF).

Since the adoption of the floating exchange rate regime, there has been a general outcry by several quarters, championed by the Consumers Association of Malawi (Cama).

“Nine months ago, the kwacha was officially trading at K167 to dollar, but as I am speaking now, the local currency is trading at almost K400 to a dollar. If the PP [People’s Party] government is not careful, by the end of this year, the kwacha will be trading at more than K1 000 to a dollar.”

He said in the villages, people cannot afford to buy basic commodities such as soap, salt, sugar and clothes.

Gwengwe also faulted the automatic pricing mechanism (APM) for fuel, saying the policy is hitting motorists and minibus users hard as it has pushed extra costs to the end consumer.

And he DPP spokesperson, on finance Francis Kasaila  accused Finance Minister Lipenga of simply painting “a false impression of hope when the truth is that this economy is moving into the doldrums.”

Kasaila said almost 80 percent of the Malawi population, which lives in rural areas, has been totally crippled by the high inflation rate due to the devaluation and floatation of the local currency.

The House will continue debate on the midterm budget statement this week when it is also expected to wind up debate on the speech by President Joyce Banda on February 8.

Many economic commentators have  pleaded with government to revert to the fixed exchange rate regime which was widely employed by former president Bingu wa Mutharika’s administration.

According to Chikaonda, a former minister of Finance as well as Economic Planning and Development and ex-Reserve Bank of Malawi (RBM) governor, the country needs an exchange rate “that is competitive and that will make Malawi move and grow.”

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