Malawi’s former finance minister Friday Jumbe has voiced his support for the much talked about government’s decision to revert to a fixed exchange rate system, saying the move would restore economic stability in the country.
Jumbe told the Business Times that liberalization of the exchange rate has contributed to economic volatility the country is currently experiencing.
“The liberalization of the kwacha and wrong fuel pricing system have directly opened our already fragile economy to global trade shocks.
“There is now too much instability in terms of prices. Commodities are hard to acquire and businesses are failing to plan because they cannot be assured of costs in the next three to 12 months. The free float policy must be revised,” advised Jumbe, an economist.
Jumbe’s remarks follows a story the Daily Times published in which it quoted a senior finance ministry official as revealing that the current administration is in the process of reverting back to the old system in a bid to tame away currency depreciation and inflation in the country.
The newspaper reports were swiftly denied by finance minister Dr. Ken Lipenga saying there are no immediate plans to fix the kwacha.
However, the reports of possible abandonment of the current system have not gone down well with the International Monetary Fund (IMF) country representative Ruby Randall who said fixing the kwacha would hurt the fragile economy even further and would also be a total breach of Malawi’s agreement with the fund under the Extended Credit Facility (ECF).
Since devaluation of the kwacha by the Reserve Bank of Malawi, the local currency has been losing ground against the American dollar for five consecutive months.
According to various banks’ statistics, kwacha is currently trading at K305 to $1, a development described by analysts as very dangerous for the country’s economy.