Attorney General Nyirenda gets tough on contracts signed in foreign currency

The Attorney General (AG) Thabo Chakaka Nyirenda has taken a tough stand against the contracts entered into and signed in foreign currency, questioning the legality and rationale behind the decision by the government ministries, departments and agencies (MDAs) to quote in foreign currencies for projects whose contractors are resident in Malawi.

In a circular dated 26th October, 2021, seen by Nyasa Times sent to all the Principal Secretaries (PSs) and Heads of DAs, Nyirenda warns that quoting prices in foreign currency or the use of foreign currency for indexing or determining the Malawi Kwacha equivalent in respect of goods or services supplied or provided in Malawi contravenes the Exchange Control (Use of Foreign Currency in Local Transactions) Regulations, 2006, hence illegal.

“My office has examined several contracts by a number of MDAs that are subject of civil litigation before different courts as well as before arbitrators. Most of the contracts for goods or services supplied or provided in Malawi quote prices in foreign currency even where the contractors are resident in the country.

“Other contracts use foreign currency for indexing or determining the Malawi Kwacha equivalent yet contractors are based in Malawi. The result of such clauses in contracts is the skyrocketing of compensations payable to the claimants,” the circular reads in part.

“The High Court and the Supreme Court of Appeal have recently held that subject to Ministerial or Reserve Bank of Malawi permission, local residents and trading within Malawi cannot quote and raise invoices in foreign currency.

“They can only be paid and receive payment in Malawi Kwacha but not demand payment in foreign currency. If they want foreign currency (for purposes of externalising the funds) they have to get it through the banks and other authorised dealers.

“Before the Regulations prohibiting the quoting of commercial transactions in Malawi in foreign currency were promulgated, the Ministry of Finance and the Reserve Bank of Malawi observed that the practice of quoting prices in foreign currency ‘is detrimental to the economy because it essentially debases our currency and forfeits our mandate as the monetary authority to the countries whose currencies are preferred,” adds Nyirenda.

The AG reminds controlling officers that the current government is keen on promoting and fostering the rule of law and, accordingly, MDAs need to take the lead in respecting the law and in upholding the rule of law.

“Consequently, I advise that all future contracts for goods or services supplied or provided in Malawi that you intend to enter into should quote prices in Malawi Kwacha otherwise my office will not vet or approve them.

“I further advise that all existing contracts that contain prices in foreign currency should be amended to reflect prices in Malawi currency,” concludes the circular.

Malawi Government is presently losing money to local suppliers who entered into contracts pegged to the US dollar.

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