Malawi devalue Kwacha currency

Malawi has devalued its Kwacha currency as part of its battle to tackle its troubled economy.

The official exchange rate announced by Reserve Bank of Malawi on Monday showed that one US dollar now buys 247.50 Malawi Kwacha on the official market, having previously earned 168 Malawi Kwacha.

“At K250 per dollar the exchange rate is well adjusted as the black market is certainly under-devalued. Following this devaluation, the kwacha is now fully liberalised.,” central bank Governor Charles Chuka said in the statement made available to Nyasa Times.

“The Bank has taken steps that should improve the availability of foreign exchange in the market by transferring United States dollars earned at the tobacco auction floors to the commercial banks,” he added.

The central bank said it stands “ready to support this exchange rate adjustment using all available monetary policy instruments.”

The statement said  the Monetary Policy Committee meets from 7 May 2012 to review the monetary policy stance.

Commercial banks were selling US dollar  around 280 Malawi Kwacha, while South African Rand between 36 and 38 Malawi Kwacha, British Sterling Pound is earning 460 to 470 Malawi Kwacha. Euro is at 365 to 375 Malawi Kwacha.

The devaluation has taken 33.598 percent value drop.

The devaluation has been described as a “move in the right direction” by University of Malawi’s Chancellor College-based economics professor Ben Kalua to unlock aid from Western donors who have been withholding assistance to the country because of the absence of an International Monetary Fund (IMF) programme with Malawi.

The IMF suspended a $79 million aid facility for Malawi due to conflict with former President Bingu wa Mutharika, who died on April 5 of a heart attack.

The IMF called on Malawi to devalue its currency to reflect its true value and make the economy more competitive.

A new IMF programme is crucial for Malawi to unlock donor funds frozen over the past year after Mutharika picked fights with international donors and incurred global criticism after his police killed 20 civilians in anti-government protests in July 2011.

The country has not received budget support from donors since January last year, creating a budget gap of $121 million in the current fiscal year which ends in July. Britain and the United States have frozen programmes worth nearly $1 billion.

President Joyce Banda asked the IMF for a new programme immediately after she took over following the death of Mutharika.

The economists say the devaluation is “ a much-needed reality check” by the government.

But the scale of the devaluation has raised concerns that inflation may be driven even higher and companies may struggle to pay back dollar loans.

For three months in a row, inflation is hovering in the double digit, a situation likely to push the cost of living and throw more people into the ultra-poverty trap in which their earnings are less than a dollar per day.

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