Malawi Kwacha floatation faulted – Economic expert

A professor in economics, Chinyamata Chipeta has spoken against the floatation of the Kwacha, saying the policy is wrong as the local unit continues to weaken further against the US dollar with the middle rate falling to about K440 compared to about K430.

Kwacha

Kwacha

The floatation of the kwacha was made in 2012 by the previous Joyce Banda administration in an attempt to adhere to retain a renegotiated three-year Extended Credit Facility (ECF) arrangement for Malawi in the total amount of US$156.2 million approved on July 23, 2012.

However, Chipeta pointed out that the policy was adopted without proper research on the ground and cautioned the Peter Mutharika government against borrowing economic policies from the West ‘wholesome’.

“The devaluation was okay, but the floatation was wrong,” said Chipeta on Friday at the Malawi Institute of Management (MIM) in Lilongwe.

Chipeta, who is also executive director for Zomba-based Southern African Institute for Economic Research (Saier), added:  “You do not float a currency when you don’t have enough foreign exchange reserves and when donor aid is uncertain.”

Chipeta, who conceived indigenous economics at Chancellor College, a constituent college of the University of Malawi, was speaking at a two-day national policy workshop designed to explore how Malawi can use indigenous knowledge in formulating appropriate policies for its economic development.

The meeting  with funding from the Nairobi-based African Economic Research Consortium (Aerc), has drawn presenters such as RBM deputy Governor (Economic Services) Naomi Ngwira, University of Malawi deans Edge Kanyongolo, Patrick Kambewa, Sosten Chiotcha, Chiwoza Bandawe and also Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa.

Chipeta said “not all foreign advice is consistent with characteristics of the local economy.”

Governor of the Reserve Bank of Malawi Charles Chuka is on record saying  fixing the kwacha was not an option because that could lead to Malawi getting off track with its IMF programme.

Said Chuka: “Any attempt to abandon this exchange rate system will make matters worse. The market-determined exchange rate is the best for Malawi.”

“If a currency is free-floating, it’s a guarantee that you will find dollars on the market…I pray that this system is to stay for Malawi,” said Chuka.

He recalled that in 1994, Malawi ‘auctioned’ the kwacha and the currency shed its value from K4 to K8 to a dollar in a week before losing its value further to K18 after five weeks.

Chuka said during the same period, inflation rose to 91 percent and that interest rates soared to as high as 46 percent.

“After that period, inflation fell sharply to 9 percent and foreign reserves were built up. People should not forget that this is not the worst,” said the RBM governor.

Consumer Association of Malawi (Cama) boss John Kapito argues that while fixing of the currency is not a good option, a managed float would be appropriate for Malawi adding that this was not a new concept in Malawi as it has successfully been implemented before even under a programme with the International Monetary Fund.

The Kwacha has been facing renewed pressure and government said it needed donor support to keep the local currency from dropping into red zone territory.

Analysts are projecting that the local unit may hit K525 to the dollar by December this current average selling price of K460.

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38 thoughts on “Malawi Kwacha floatation faulted – Economic expert”

  1. PUTEN says:

    IF MALAWI UNIVERSITY IS RANKED 99 OUT OF 100 UNIVERSITIES IN AFRICAN DO YOU THINK CONTRIBUTIONS FROM OUR PROF FROM THE SAME UNIVERSITY CAN CONTRIBUTE GOOD IDEALS TO OUR COUNTRY.

    TO OUR FRIENDS OUR UNIVERSITY IS LIKE SKYWAY BUSINESS COLLEGE .

  2. Ulesi ndi minyama, Cashgate ndi ugalu says:

    Dolo pa malawi ndi bakili. Anatisankhira chimunthu chofaifa. Anadziwa kuti amalawi akakhala pa mpando safuna kuchokapo, ndiye osampatsira dala munthu wamoyo wathanzi woti adzakhala ndi moyo wautali adakalamulira. Long live Bakili you are very wise.

  3. verson says:

    The problem is Economics, it has different principles and there is always different solutions to economic problem. All these people are talking about the same thing in different jargons.

  4. clement says:

    These so called Economics Tutors know nothing about real economics on the ground. Once you fix the kwacha a parallel market immediately emerges, and that confuses the trading system. The black market thrives and banks become dry. Chuka is aware of this. Better kwacha igwe koma izipezeka

  5. Medrian Kaunda says:

    I think everyone leaves out one very important player in this foreign exchange scenario. That is the resident Asians in Malawi, not known for national patriotism in regards to the economy. Instead it is always mzungus and donors who gets the blame, A realistic look at the actual situation on the ground. would pinpoint the banks and Asians as the REAL culprits. Please do not reject this comment with an alleged excuse of avoiding racist remarks. You have enough in regard to mzungus to go around allready.

  6. DOBO says:

    The problem is not with economists,the problems is not the donors but the problem is the leadership.Malaysia was poorer than Malawi 20 yrs ago but voted unselfish strong visionary leadership which put that country on map.We can talk this and that but without visionary reader nothing can be achieved.We will remain where we are.May be
    the problem is with majority Malawian.So, the wise minority are suffering due to irresponsible majority decisions.

  7. is it wrong to suggest a remedy when things go negative? No. Ndiye kwacha isiyeni ifike pa MwK700

  8. mpopoma says:

    Chipeteta right, what kind of economics did. Some of you learned ?.what he says is that you don’t float the kwacha in an economy where you have little earnings. The bazungus have capitalized on our week president’s economic s. Vizeleza

  9. MaiMai says:

    Where were you Chipeta then? Why wait to give advice after 2 years while when kwacha stsrted crumbling you were busy holding chalks. ..rubbish economist.

    TALK IS CHEAP! ALL YOU ECONOMISTS ARE SO DUMB SO? SHUT-UP.

  10. ochewa enieni says:

    eish very bad kwa akumudzi loma adzasangalako kkk

  11. Judge Kamisah> Masyesye Chitipa says:

    Let us give them chance to do whatever they can…to May 2019.

  12. Big brain says:

    Ma economist wolephera kuthandiza dzulo lawo awa!

  13. chatonda says:

    The problem is that we only have one source and that is tobacco. The government should diversity our cash crops and improve tourism by making sure our national parks, Museums and other places of interest are developed and promoted to high standards. These are permanent sources of income than tobacco. Let us learn from our friends in Kenya how they have developed by developing their cultural sites.

    1. Inu says:

      Totally agree particularly on tourism. We have very beautiful places that should really bring more money than they do now. But in order to earn more we will have to spend more to put in proper infrastructure. If we do this, we can move from tobacco very easily.

  14. walalawalala says:

    believe you me, moyo ukawawa pa malawa kwacha ikugwa dairy katundu akudula masitolomo kodi a muthalika mukuziona zimenezi, these so called donors have refused us their money why should we still continue following their nonsense policies, muthalika act like your brother think for the poor malawians unless these white men give us the money otherwise we are old enough to make our own decision
    ,

  15. Chulu says:

    We have too many economists and accountants in Malawi who can’t agree. The bottom line is we are not exporting enough and we are importing more. We need more experts to help with boosting manufacturing coming up with inovative ideas … otherwise the blame game will be the order of the day.

  16. Real economist says:

    These so called economic experts are jokers. The kwacha is falling because of reduced forex earnings from a small export based, zero foreign budgetary support and reduced foreign direct investments. Many kwachas are chasing a few dollars- simple supply and demand concept. Why not tell your students real cause of the problem? If donars inject a billion USD in the economy today, the Kwacha would immediately gain illustrating the problem in not the policy but availability of foreign currency in the local economy.

    1. Prominent economist says:

      Mr real economist i wish to agree with you that some of the people are real jokers but not Chipeta he is Prof emeritus of UNIMA and an experienced researcher and his arguments are based on real data.

      1. Chilungamo Chimawawa says:

        so where was he hiding when our economy started going down? Let peter Mutharika feel the pinch of wrong decisions plus cashgate that his brother Bingu brought to the land of Malawi…………………….Malawi will never be the same again as long as DPP government is still in control!

        1. kkk says:

          Are you that dull?

          Peter will not feel the pinch, you will!!

  17. loveness says:

    thanks JB and malawi governament for massing the lives of the poor malawians. you dont know what hardship we are going through you are atleast able to feed yourself and your family but we can not afford to feed our family once in the day.

    1. Chilungamo Chimawawa says:

      you must thank APM and his brother Bingu for the hardship!

  18. How good is the track record of IMF programmes in developing countries? Perhaps they lack the indigenous element, hence out of context. Prof Chipeta, please advise us.

  19. Tiko says:

    Sukulu zanu mwamva. Anthu ophunzira nonsenu koma Malawi kumangofoyirabe? Ndiye sukulu zanuzo ziri ndi phindu lanji? Fwetseki.

  20. Bob says:

    Expirt more, produce more and import less. Thats the only solution in Malawi. We are not piir ee can invest locally in mining, tourism, textile etc. and generate the much needed forex, just some few years ago we companies like DWS, B&C, BAT etc that used to manufacture goods locally. But becoz of stupid leadership all this is gone

  21. pierra says:

    trouble with economists’ meetings is that they never ever agree on anything! If you locked ten economists to come up with ONE great idea; you will hear a knock that they are ready after three days only to announce 16 policy principles. so its always wise to take any prescribed dosage with caution. lets say continue taking the aspirin together with any dosage recently prescribed!

  22. Think Tank says:

    economists like lawyers are confused lot. They dont agree on anything. Always throwing in confusions.

  23. illiterate says:

    Wont go as far as Dec to hit the K525 mark. Its K500 to a dollar today. In a week or two it will be 530 to a dollar. Simple matchs. Our daft economists cannot read this.

  24. Please take note, he really knows what he is talking about.

  25. phunda says:

    Ndiye timve ziti? You told JB to flot the kwacha and today you are saying its faulty. When will our so called experts become consistent. Was there no local situation in 2012 which you have seen today. Where will Malawi turn to coz it seems everywhere ; the executive , civil service, the academia, the police, army, the courts are all liers, thieves, looters, inconsistent and unreliable. Look at our learned lawyers how they get involved in looting and swindling clients and yet the people look up to them.

  26. The Truthful One from the West says:

    What Professor Chipeta is advocating cannot work in a small economy heavily dependent on imports with a small export base. Let us learn from Mugabe’s Zimbabwe. Mugabe stubbornly fixed the value of the Zimbabwe dollar. The result is that the value of Zim dollar collapsed and Zimbabwe now uses the US Dollar. The Kwacha can neither be traded regionally nor internationally. This man developed indigeneous economics but it puzzles me that 50years after independence Malawi is still one of the poorest countries in the world. Professor Chipeta vividly reminds me what Kamuzu said that if you were take a professor from a university and give him a country to run they would not know what to do. Running a country is very different from teaching at a University.

  27. Jimmy says:

    Malawi zinthu sizikuyenda ayi

  28. From all problems our country is experiecing that could need a president to help this is one pro.Peter Muthalika should quick look at.A country which its currency never stable becomes a country of collapt,country abandonism since verious people leaving for other countries for greenpasture.if we can make a reasech in Malawi most of children that are founding along verious roads asking helps their parents are alive but they are based in other countries like South Africa in a large scale then Zambia,Tanzania,Mozambique and other even in Europian cnuntries.they cannot do otherwise bcz their country has no stable currency,the cannot even think of their families behind.Brison Brainfast Mpoto Kasonda.

  29. Alfred Munduwabo says:

    Let’s see where we are heading too. JB’s decision is what donors wanted , if donors are not coming to assist us then just show donors that we can survive without them. Do what you think can do Malawi better.

  30. kulyolyopera says:

    US$ is selling at MK 494 not MK460

  31. Nyapapi says:

    Just goes to show how really dull Joyce Banda is!

  32. ES4E says:

    Agreeing wth Tchuka

  33. Alungwana says:

    But the best way isnt about floatation or fixing but we must find means of ensuring that the forex stays in this country. Its hight time you oppose each other on fixing or floating. When are we having real economical experts to help the country to be a producing nation rather than theoretical economists who makes noise on the paper. If we dont have the means to secure the forex then we should float the kwacha.

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