Brace for continued depreciation of Malawi kwacha:  Mlusu’s Mid-Year Budget omitted exchange rate, says Mwanamvekha

Main opposition Democratic Progressive Party (DPP)  spokesperson on finance in Parliament Joseph Mwanamvekha has described Minister of Finance Felix Mlusu’s Mid-Year Budget Review Statement  as lacking merit  when it has omitted the exchange rate whic is the key macro-economic fundamental in the budgeting process.

Mwanamvekha, who was the last minister of Finance in the DPP administration booted out through the court-sanctioned fresh presidential election held on June 23 2020, said the budget is “unrealistic” because Mlusi said currently foreign reserves have been depleted from US$846.6 million in December 2019 to US$ 574.3 million in December 2020.

“This means, Madam Speaker, that this MCP government is failing to generate enough forex reserves. Malawians should brace for tougher times ahead as they will scramble for the little foreign exchange reserves.

“If they are lucky to get these reserves, they will get them at a much higher price than it was under the DPP government,” said Mwanamvekha in Parliament.

He said this  would be exacerbated by the widening of the trade deficit where the country is exporting less than what it importing.

This, Mwanamvekha said, therefore, means, will lead to the continued depreciation of the Malawi Kwacha against the currencies of the country’s main trading partners including the US dollar, Euro, Chinese Yuan and South African rand.

“As the Malawi Kwacha is depreciating the inflation will also be increasing as there is a positive correlation between the exchange rate and inflation,” said Mwanamvekha in whose time as ghe countgry’s purse keeper presided over the the single digit in inflation.

Mwanamvekha referred to Parliament his Masters degree thesis which he said  is available at Chancellor College of the University of Malawi  and the Reserve Bank of Malawi libraries and also been confirmed by a number studies by renown international economists.

Said Mwanamvekha:“Therefore, the projection that the annual headline inflation will average 7.4 will not hold. It is also surprising that the Minister of Finance is projecting an average headline inflation of 7.4 while the central bank is putting the same at 7.8 at the year-end, the question is which is which?  Does this mean the Minister of Finance does not talk to the RBM Governor?”

Mwanamvekha re-inforced his claims that the budget is a consumptive budget because of  the failure to collect the targeted domestic revenue of K600 billion during the period under review with only K564 billion collected, representing a shortfall of K36 billion.

On the expenditure side, he said instead of spending K975 billion, it spent K998.5 billion, representing an increase of almost K24 billion which caused net borrowing of approximately K30 billion as at end of December 2020.

Furthermore, instead of borrowing K266.3 billion at end of first half, government borrowed K350.9 billion of which K304 billion was borrowed locally, thereby overcrowding the private sector.