The ongoing depreciation of the kwacha, Malawi’s national currency, to the U.S. dollar has sent the prices of some consumer goods and services in the country skyrocketing.
“The clothes I import are now double the price I used to sell them for,” Fanny Lunda, who imports men’s and women’s clothing from China, told Anadolu Agency.
“They have become unaffordable to locals because the kwacha is weaker,” she said.
The value of the kwacha has fallen by over 20 percent against the greenback over the past two weeks, hitting an all-time low of 520 kwachas to the dollar.
In May, June and July, the kwacha had traded at 380 to the dollar. But after the end of Malawi’s tobacco selling season in August, it fell swiftly, reaching 450 to the dollar.
By the first weeks of November, the kwacha had reached an unprecedented 520 to the dollar, where it remains.
Mike Banda, an importer of second-hand cars, said business had taken a major blow as a result.
“We used to import three or more cars when business was good, but we have cut down to one,” he told AA near the Blantyre Shopping Mall.
“You cannot easily get U.S. dollars from banks, so we source the unit from the black market, where it is expensive,” he explained.
The base lending rate (the cost of borrowing money) at the country’s commercial banks was raised on Thursday from 35 percent to 38.5 percent.
This means it will be more expensive to borrow from the banks, so that, in many cases, small-scale businesses will not be able to afford to access capital.
The recent 20-percent currency depreciation has led to soaring goods and services prices.
Gasoline prices jumped from 796.90 to 856.70 kwachas per liter, while diesel prices rose from 805.50 to 865.90 kwachas.
A can of Coca-Cola that sold last week for 193 kwachas now sells for 200 kwachas.
More price hikes are expected this week.
However, prices for maize – Malawi’s staple food – have remained stable at K4,500 (roughly $8.65) per kilogram due to large market supply.
Prices for other household items have gone up, too, creating a situation that economist warn could send ripple effects across the economy.
“Minibus fares could go up as well because we respond to fuel pump price adjustments,” Costly Kamange, executive member of the Minibus Owners Association, told AA.
Due to factors including the recent currency depreciation, the Reserve Bank of Malawi (RBM) has raised its December 2014 inflation estimates from 20.5 percent to 25.4 percent.
Financial analysts say the depreciation was expected because the currency is heavily tied to tobacco, the country’s main export crop, accounting for some 60 percent of its foreign trade earnings.
“Every tobacco season, the kwacha gains against major currencies. But when the selling season is over, the currency struggles,” Chikavu Nyirenda, a lecturer in economics at Catholic University, told AA.
“We expected this depreciation, as the government does not control much of [the currency’s value],” he explained.
Market analysts link the depreciation to several factors, including currency speculation and suspended donors support.
Some experts warn that the continued depreciation of the local currency will push up lending rates and trigger further inflation.
They warn of high job losses, a slowdown in exports and the closure of factories that cannot import raw materials.
Experts warn that a continued fall of the kwacha could also result in people lining up for basic goods, such as bread and fuel.
“If demand falls, we will not sell and produce more and we will not enjoy economies of scale,” said Fredrick Changaya, operations and marketing director at Candlex Limited, which produces fast consumer goods such as soap and candles.
He said the fall would certainly push up prices and reduce people’s disposable incomes and, therefore, reduce demand.
“Due to the fall of the local currency, we are also being forced to borrow at exorbitant interest rates to meet our import requirements,” Changaya told AA.
He called on the RBM to implement policies, including rationing foreign exchange, so businesses might benefit from the little foreign currency available on the market.
Finance Minister Gondwe, for his part, has promised to take measures to shore up the kwacha.
“We are doing something about it,” he told AA in a telephone interview . “I want all businesses to know that we will find a solution.”
He insisted, however, that forex rationing was not a viable option.Follow and Subscribe Nyasa TV :