Malawi economists push for devaluation of currency
In Malawi, pressure is mounting from economists who are pushing the government to devalue the currency, the kwacha. Some say it’s an appropriate response to the devaluation of major currencies such as the US dollar and the British Pound sterling. But President Bingu wa Mutharika refuses.
The kwacha recently traded at MK140 against the US dollar. It’s been steady at that rate for the past three years, and local economists say that’s bad for the economy. They say continuing to peg the kwacha to a major currency, especially the dollar, is a recipe for disaster.
They say it has created a booming parallel, or black market, where there’s a better exchange rate– up to 50 kwacha more per dollar. Some analysts say the black market rate is the true value of the kwacha and that de-linking it from the dollar will help reduce Malawi’s chronic shortage of foreign reserves. Since last year the country has been hit by foreign exchange shortages.
The president of the Economics Association of Malawi, Thomas Munthali, says the strong kwacha has been hurting the economy by making Malawi exports more expensive for foreign customers.
Munthali said the kwacha should be devalued by about 25 kwacha to about K167to the dollar. The advice was part of his presentation at a recent workshop on the budget in the capital, Lilongwe. He said currently the exchange rate is overvalued by about 19 percent.
The World Bank agrees and is calling on the government to devalue the kwacha.
Tim Gilbo is the Malawi World Bank country representative. A local daily newspaper recently quoted him as supporting the call for devaluation. He said it could shield the country from major global shocks, especially during the current global financial meltdown.
Gilbo said in many countries, the public tends to perceive weak currencies as bad. But he said a weak Kwacha would actually improve Malawi’s competitiveness on the global market. As an example, Gilbo cited his native Australia, which he said devalued its currency in 1997 by almost 50 percent. He said the move has helped the country withstand the current financial crisis by making its exports cheaper.
But President Mutharika says devaluation would help those few who are hoarding US dollars. “The devaluation of Kwacha will only benefit a few individuals,” particularly non-Africans, he says. “They want to push [it], because they [will] go to the market and convert the kwacha to US dollars and keep it. Suppose we devalue, they will quickly off-load their dollars, make huge sums of money (out of that). These are the ones to benefit.”
So President Mutharika said he will not support the move. “I have resisted devaluation and will continue to resist devaluation, because I need to give the business community and everybody in Malawi a stable foreign exchange regime. And I am an economist. I understand and follow what is happening around the world. I am not going to devalue the kwacha to please one or two people,” he says.
But the Malawi Confederation of Chambers of Commerce and Industry, which supports devaluation, is calling on the government to make more dollars available to the commercial banking system. Economists say this can be done in part by cracking down on the black market and unlicensed foreign exchange bureaus.
Executive director of the confederation, Chancellor Kaferapanjira, said that should help the government maintain the value of the kwacha. –VOA
Nkhani Yovuta kwa mayiko osauka. All I know is that Malawi imports more than it exports and by far! who is going to win and who is going to be a big loser in the long run? We certainly cant compare Australia and Malawi. Give us a fair comparison so that we can think about it. Looks like we have forgotten what happens when there is a devaluation and yet we have had so many.A devaluation is not a cure but part of the treatment. How the economy responds depends on a number of factors..just like administering treatment for a disease (egTB) and our economy is chronically ill..esp when the rains are bad.Our economy does have other underlying ailments.
I agree with you Anda Kamanga. May be Tim Gilbo will benefit since his salary comes in US dollars so devaluing the kwacha will increase his money. But how many devaluations have we had mmbuyomo? I remember during Bakili’s time soon after the Fieldyork scandal the kwacha plummeted. Did it really increase our exports. On the other hand imports become very expensive and since our production depends much on imported machinery and raw materials a devaluation can hurt us especially the poor while benefiting a few rich. Lets go back to previous devaluations and study how they affected us. We will see that they never benefitted Malawi. They increased inflation and did little to improve our exports. Devaluation???? Sorry we dont need it. Mwamva a World Bank.
I was just wondering what a comparison between Australia and Malawi and looking at the year which the thing happened, it’s really fiddling and fixing at its best. The formulas they memories are not what realities will tell them.
It will only benefit those with pound/dollar accounts as they will make more kwachas. But some of us with kwacha accounts will be a great disaster as value will reduce completely.
If the Kwacha is pegged at K140=$1, you need only K1400 for a $10 top up card of Zain cell phone units. If the kwacha is devalued to, say, K200=$1, you will need to pay K2,000 for the same number of units. This is what devaluation will do to Malawi. The prices of all imported items will go up. Let us list them: Fuel, farm inputs, cars, machinery, raw materials, medicine, condoms, computers, TVs, clothes, building materials etc…everything that is imported will go up immediately! Traders will have a simple answer for raising prices. Kwacha yagwa. So, I agree with Anda. Since Malawi imports more than it exports, a devauation will affect us badly. Devaulation will also make imports of raw materials more expensive. Hence the same Chamber will cry pyoooo! So I agree with Economist Bingu. In the absence of convincing evidence, Thom Munthali, Gilbo and the Chamber are just reciting textbook theories. Give us the evidence! In fact data shows that exports have increased since 2006. During Bakili’s time the Kwacha was devalued several times, but did exports increase? Hell no! This shows ECAMA, Chamber and Gilbo are using the wrong Economic model. So Bingu, please don’t listen to these groups. They are not responsible to anyone. We voted you into power. your job is to take care of our interests, not the interests of a few people. I am usualy critical of Bingu, but on this one ndili nganganga
I agree with you Madalo. should the Kwacha devaleud who will be at risk. Ena akufuna adzalemelerepo chifukwa choti amalandilira m’ma Dollars. A Bingu titetezeni kwa anankafumbwewa.
anda kuli bwino ku Reading? Wadinda fundo ayise.
Its tricky.most of our raw material,capital goods and consumer goods come from abroad and devaluing the kwacha will make other currencies expensive.producers will simply throw this to consumers.what will happen to Mk500 fertiliser and fuel after devaluing the kwacha?in the short run we will suffer.amationjezera MK3000 zinthu zitakwera ndi MK25000.We are not an exporting country at the moment!
devalue if you are going to be paying the citizens in U.S dollars
Bingu is correct!
Let the Kwacha trade at same value until next financial year.
The current financial tsunami does not call for devaluation…Which of the top 4 currencies(US Dollar, British Pound, Japanese Yen and Euro) has devalued?
Malawian Economists answer the question.
kodi ndi funse?agaluwa akunena za Devaluation,are they economists or thieves,perhaps fools.To devalue means to reduce the value of MK in relation to the $US.So when you talk of devaluing i.e. for instance,currently the rate is $us1=Mk140 after devaluing it will be Mk14=$1.That is the meaning of devaluation in the principles of Economy.so the next question is,are those economists real or thieves, maybe money launderers.These fake economists obviously it means they have foreign accounts,so they seen this move like it’s gonna boost their accounts.Dr Bingu is an economists full time.I don’t think he will entertain such nonsense
The likes of fiddling and fixing as its best! I usually feel these economists are one of the most confused people in a profession world and they usually don’t know what is best for certain situations. Accepting the fact that I am not economists, I wrote before that how long are we going to stand the heat!?
Talk to us about Independent states! What are we independent of and independent from? We have more years to dance to sweet melodies which we even feel are not good to dance. If you want to copy for China, they are now independent and USA or these western governments go begging for money to save the collapsing economy.
They have tried to push it that they should give their currency stronger value, but China is not in the levels of dancing tunes. This time around, they will be telling the world that US$ should not be a world currency, its time to create a new world currency not based on a certain country, and the news is not welcomed in the west. Let’s make people more dependent on home produced things, encourage domestic consumption, export fruit products to those rich countries which cannot grow what grows in tropics and even to some Asian countries.
We can even start Industrial Hemp production because we are missing a lot of things which this so called west is doing and blinded people that this is bad that is bad. Check where the war on drugs is fought, South America, and who cunsumes, America and yet they can’t fight war on that soil. But Industrial hemp is for the good of many things, we can even start exporting that because we have good weather to grow that or
accept keep dancing. Some folk believe what Paul Collier, well known in Economists once wrote that “Even best governance and policies will not turn Malawi into rich country”. We can change conceprt together as a nation, do what the west don’t know about relieties of lif or accept dancing to the sweet melodied.
Economists!? Hahahaa, fiddling and fixing!
The big man is collect. because my brother who recently came from african countries complained that things are very expensive in malawi comparing in other african countries and once kwacha is devalued there will be… i don’t know and it is you the nyasa guys who will be criticizing the ones on power. remember this is malawi and Australia or what let him do what he now.
This support is coming from foreigners who wants to cash on us. Please osapanga devaluate ndalama yathu ife timayinyadira.