Malawians are expected to feel the pinch as final decision to devalue the Kwacha is expected to be implemented Monday, May 7 2012.
According to a highly placed source from one of the leading commercial banks, the government has given a go-ahead to devalue the currency, which both local and international community believe it is over-valued.
As at the close of trading on Friday May 4 2012 the Kwacha was trading at an average K166 to the United States Dollar.
With the decision, the currency is expected to float at K270 to the US$, representing a 60% slump. This is way above the anticipated 40% rate of devaluation which President Joyce Banda hinted a week ago.
Finance Minister Ken Lipenga said President Banda had called for the devaluation “to signal a policy shift from that of her predecessor (late Bingu wa Mutharika), who had a different policy on this”.
Since President Banda made the announcement of the impending devaluation, there has been panic on the local market with some traders hoarding forex as well as goods in a wait-and-see scenario.
Her announcement received a sharp criticism from the then president of the Economics Association of Malawi (Ecama), Naomi Ngwira who feared the executive announcement would further worsen the forex situation in the country.
Ngwira is now hired by President Banda as deputy governor at the Reserve Bank of Malawi.
The leading world financial institutions, the International Monetary Fund (IMF) and the World Bank have been on the Malawi government’s neck demanding to let the Kwacha float freely as a prerequisite to resuming the budgetary support.
Further, the government has reversed its decision of closing the money exchange bureaus which it had ordered closure in 2009 for non-compliance with the Exchange Control Regulations 2007.
“All Foreign Exchange dealings by foreign exchange bureaux shall be conducted within the provisions of Guidelines for Licensing and Operating Foreign Exchange Bureaux in Malawi revised in May, 2007. With this arrangement, the Exchange Rate Framework and Operational Guidelines issued in August 2011, are hereby rescinded,” reads a statement by the central bank Governor Charles Chuka seen by Nyasa Times.
The government first cracked its whip on the forex bureau operators in 2007; attracting a legal battle which the operators lost to the government regulator, the Reserve Bank of Malawi (RBM). Since then, private forex bureau operators have been operating under licensed commercial banks and not as separate entities.–(Additional reporting by Wanga Gwede, Nyasa Times)
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