Indications of a precarious economic situation on the ground continue to show with the country’s currency, the Kwacha facing steep depreciation as some foreign exchange bureaus and commercial banks selling the greenback at K530 this week against the globally strong U.S. currency.
Reports indicate the Kwacha is at risk of renewed weakness after it sharply lost its value against the dollar in November last year when it hit K520.
Published daily foreign exchange bureaus rates by Reserve Bank of Malawi dated July 14 2015 show that most bureaus were selling a dollar far between K500 ($1) and K530 while as of yesterday most ADBs were officially selling a dollar at around K470.
Lilongwe-based Golden Foreign Exchange Bureau was buying a dollar at K485 and sold the same at K530 while Midland Forex Bureau was selling a dollar at K525 and bought the same at K485.
According to The Nation newspaper, on black market or in the streets of Lilongwe, dealers were selling a dollar at K525 and bought the same at a range of between K505 and K510.
The paper noted in its report that the weakening of the currency is in sharp contrast to the high levels of foreign currency the economy is sitting on, cumulatively at $1 billion ($500 billion) as at July 13 2015. This is a combination of gross official reserves, held in the custody of the Reserve Bank of Malawi (RBM) to prop up the kwacha, estimated at $724.29 million, or 3.47 months of import cover, and private sector reserves in commercial banks at $292.4 million, or 1.4 months of import cover.
Recently, Minister of Finance and Economic Planning Development Goodall Gondwe conceded that the country is going through turbulent times.
Speaking during a breakfast meeting organised by the Association of Early Childhood Development in Malawi (AECDM) to lobby for more funds towards early childhood development, last Wednesday, Gondwe said the economy is in “bad” shape.
Meanwhile, Nico Asset Managers Limited, has forecast that the inflation rate will remain high, triggered by soaring high cost of food and low maize output.
In its June 2015 monthly economic report, the Blantyre-based investment advisory firm, said: “Inflation is expected to remain elevated, as a result of the rising food prices from lower than expected harvest and recovering global oil prices.”
Malawi’s headline inflation rate—the rate at which the general level of prices for goods and services rises—now stands at 19.5 percent as at May 2015, a 0.7 percentage points increase from 18.8 percent in April 2015, according to National Statistical Office (NSO).
University of Malawi economics proffessor Ben Kalua said the situation is worrisome.
“This reflects the dynamics of supply and demand and there are concerns that banks are not as responsive to demands of the market. So, the currency is getting weaker as there have also been aid flow problems among others” said Kalua.
Former economic planning minister Ralph Jooma has said radical changes are needed to revive Malawi’s economy, which is in bad shape and requires a fresh approach.
Jooma said inflation “will not be as low” and that the exchange rate “will not be as stable.”
He said: “Interest rates will remain high and industry capacity utilization will subdue and therefore hamper economic growth because the economy will not be able to produce the projected goods and services. This is the reality.”
An economic observer told Nyasa Times that although DPP had “rigged the May20, 2014 election, it will not be able to rig the economy”.
He observed that the majority of the country’s leadership was more interested in political expediency rather than pragmatic bread and butter issues.
To restore Malawi’s position on a positive economic growth path, he suggested an investment is needed which calls first for investor confidence and security.Follow and Subscribe Nyasa TV :