Malawi’s Finance Minister Goodall Gondwe has expressed confidence in government efforts to stabilise the weakening Kwacha currency which has fallen more than 300 percent, to 715 to the dollar from around 160 since 2014 when President Peter Mutharika took power.
Combined with a poor maize harvest, the teetering kwacha has pushed inflation to 25 percent from 18 percent in March last year, as the cost of living has gone up with accelerating food prices heaping misery on lower-income households.
The Finance Minister Gondwe said black market rates – often a useful exchange rate gauge in poor, developing economies – indicated the kwacha’s decline was nearing its end.
“We think the kwacha will stabilise this week or next week,” Gondwe said. “If you go to the black market area you will find that the difference between the black market rate and the official rate is not much. Which means that it has reached its equilibrium.”
The kwacha has been laid low by a loss of donor funds, falling export revenue from the key crop, tobacco, and a general loss of faith in African currencies as commodity prices fall.
Gondwe has also said Malawi should see economic growth pick up to more than 4 percent in 2016 from about 3 percent last year as the country recovers from a drought caused by the El Niño weather pattern.
Agriculture accounts for almost a third of Malawi’s economy and provides the livelihood of 80 percent of the population. Last year, the country suffered floods, then a drought that has hit production of the maize crop across southern Africa.
“We don’t think the weather will be as bad this year as last. Growth could be higher than 4 percent in 2016,” Gondwe said.
Malawi’s central bank in September was forecasting growth of 5.4 percent in 2015 and 6.5 percent in 2016 after a 6.0 percent expansion in 2014, but the weather has cast doubt on those forecasts. The International Monetary Fund said in September 2015 growth would slow to 3 percent.—Additional reporting by Ed Stoddard, Reuters