Malawi Kwacha still tumbles despite tobacco sales

Malawi Kwacha is still struggling on the market though tobacco sales which are a major source of the country’s forex have just been closed.

According to the National Bank of Malawi’s Economic Newsletter released in September, the country is still struggling to match with other foreign currencies.

An Economist working at the National Bank of Malawi, Shadreck Malenga, has revealed that the Malawi Kwacha will continue to suffer on the world market for some time before it becomes stable. He said this is so because of other external factors which are affecting the country.

Malawi Kwacha

“Malawians should wait a bit longer before the economy bounces back to the right truck because there are a number of factors which have tightened up the country due to late resumption of the International Monetary Fund (IMF) programme, which essentially resulted in most bi-lateral donors not participating in aid disbursement in the first fiscal quarter (July – September),” said Shadreck.

The economist said, donors stayed away from this country claiming that Malawi has poor governance and bad policies in economics, which disappointed them, forcing them stop in assisting Malawi.

Malenga further said another factor was the shunning away of many farmers from growing the golden leaf in the year, 2012 due to poor prices and high rejection rates experienced in the 2010/11 auction season.

 

According to the report, the 2012 tobacco season has seen record low volumes with 79.822 million Kgs of tobacco produced and sold compared to 237.171 million Kgs produced and sold in the year 2011.

As a result of these low volumes, the auction period has been the shortest on record lasting only 20 weeks less than 41 weeks in the 2011 season.

“However, prices recovered to a season average of U$D2.2277/Kg in the year 2012 outshining the 2011 prices recovered to a season average of U$D1.2385/Kg for all tobacco types representing 79.87 percent increase.

“Total revenue recorded at the close of the auction in 2012 was U$D177.8million and U$D293.7million in the 2011 auction season,” reads the report.

The report further disclosed that this turnout underscores the importance of prices to production as farmers shifted to production of other cash crops and did away with tobacco due to low prices and high rejection of tobacco at the market.

Devaluation

Malenga also said due to the devaluation of the Kwacha a development that was effected from 7th May 2012, many organizations and companies are being pressurized by their employees to increase wages and salaries in order to suit the environment whereby prices of many goods and services have sharply risen.

Currently, indications show that cost-push inflation will intensify given the concessions government is making for public sector organizations on wage increases.

Even those that were already awarded are continuing to stage wild cat strikes demanding even more increases.

Malenga added that these pay accommodations may result in a wage-inflation spiral which may derail government’s austerity budget announced in June 2012.

The above activities are making it hard for the Kwacha to stabilize though the tobacco season has just been closed.

External-Forces

According to one of the well known economists, Mavuto Bamusi, the local currency is failing to gain its power because of these external forces.

“The free floating system of the Kwacha and fuel prices is also making it hard for the Kwacha to withstand other foreign currencies making it less and less powerful which is negatively affecting our economy,” said Bamusi, when asked to analyse the plunging of the kwacha despite the just ended tobacco sales.

The September, 2012 National Bank Economic Newsletter indicates that the situation may be exacerbated if global fuel prices start to increase, which may then mean further local pump price increase followed by continuous rising of goods and commodities.

No panicking

Responding to the issue, the Minister of Finance, Dr. Ken Lipenga, said: “We should not be panicking up because this situation laid its foundation sometime back and for it to be eradicated it may take some period of time because we cannot manage on our own but donors have to come in, a thing they have already started doing, we just need to be patient and persevere.”

Lipenga likened the economic situation in the country to a person who is ill and for him or her to get healed one needs to take bitter pills, which may even cause some side effects before eradicating the disease.

Currently, the Kwacha is trailing at 285 against the Dollar and K37.00 against the Rand on the market.

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