Malawi Kwacha depreciation ‘worrying’: Don’t panic, says Reserve Bank governor

Malawi currency the Kwacha continue to face a slide against the major world currencies with opposition parties saying its worrying development  but the Reserve Bank of Malawi (RBM) Governor, Charles Chuka, said there is no need for panic.

Spokesman for finance in opposition Malawi Congress Party (MCP), Joseph Njobvuyalema said depreciation of the kwacha or weakening in the value of the local currency is “worrying.”

He said Malawi  being a highly import-dependent economy, every time the kwacha loses this amount of value, the cost of goods and services goes up significantly and almost immediately.

“It is worrying because it may only be a matter of time before we see increases in prices of goods,” said Njobvuyalema.

He also said the country expects to  have rise in the rate of inflation.

But central bank governor downplayed the weakening of Kwacha, saying  “it should not be news that kwacha is depreciating.”

Chuka attributed to depreciation of Kwacha to a high growth in imports relative to exports .

“There is no news that the kwacha is depreciating because we were expecting it anyway. [It is] because the country still has not managed to diversify its sources of exports,” said Chuka in an interview published in The Nation newspaper on Thursday October 16, 2014.

“And stories about donor flows remain negative at this point and there is no good news as yet.”

He said despite the fact that donors stopped bankrolling Malawi’s recurrent budget, the country is not stuck.

“It is growing and it is requiring more and more imports. The imports are necessary to grow in fact. Hopefully, at the new exchange rate, we have more raw materials and intermediate goods, basically inputs in industry.

“We hope data will show that in fact our imports have shifted in the sense that we are importing more of industrial inputs. So, as the economy grows, demand [for dollars] also grows,” explained Chuka.

The Governor said Malawi’s problem is that the nation has not yet reached a point where it is producing more exports.

“We need a bit of time to start producing more exports. So, interest rates remain so high and until we have stabilised the economy and interest rates come down, diversification of exports will still be a problem. So, we have more demand for forex than we have supply.”

The  weakening of Kwacha is happening soon after the country has just closed its marketing season for tobacco, touted as the main driver of the strength of the kwacha as the crop dominates the foreign exchange revenue buffer for Malawi.