Weak Kwacha bites poor Malawians harder

An average Malawian family of six needs about K60, 000 to buy food, clothing and pay rent for a month following the devaluation of the currency kwacha, a September report by Centre for Social Concern has said.

This is about US$350, at the current exchange rate, a sum that is beyond the reach of most Malawians who must survive on a dollar a day and a diet centred on locally resourced food.

Government reduced the value of the kwacha against major currencies in a bid to boost the availability of forex on the market but the move has failed to rejuvenate consumer confidence as evidenced by the incessant fuel and foreign currency shortages.

The kwacha, which was pegged at K145 to the greenback since 2004, was seen by many analysts, including the influential International Monetary Fund (IMF) as unrealistic, putting pressure on government to devalue.”

Malawi's largest legal tender K500

“The problem might be that while the Kwacha was devalued by 10 percent in early August, the salary survey made in mid-August showed that income levels remained stagnant. If consumers were to remain with the same purchasing power as before August, one should have been able to receive increased income at more or less the same magnitude as the 10 percent devaluation.” reads part of the report.

But while the cost of living has jumped salaries of civil servants and workers in the private sector have remained stagnant, casting a gloomy economic atmosphere in a country operating on a zero-budget deficit.

The report says during the same period last year the cost of living in the urban areas of Lilongwe, Blantyre and Mzuzu was about K45,000 but is now up 17 per cent, undermining the very social fabric of Malawian society and breeding political unrest.

“Current and historical data has revealed that low-income households are more vulnerable than four months ago to falling below a minimum acceptable standard of living. Without action to combat effects such as fuel shortages, social and economic exclusion are likely to rise,” reads part of the report.

A Blantyre based economist told Nyasa Times the current problem hitting the country is the architect of government whose policies are not in tandem with the global financial tremors that has hit established economies like the United States of America.

“Government just devalued without looking at the underlying cause of the forex shortage,” said the economist, adding that policy makers should have looked at the economic advantage for devaluing the currency and the true market value of the kwacha.

He said the real issue is that the private sector has failed to produce more goods for export because they do not have foreign currency to import inputs such as machinery, fuel and fertiliser.

“The private sector knows that even at its current devalued value, the kwacha is still seen too strong and hence makes our exports uncompetitive in the region so buyers prefer to import elsewhere,” he said.

This scenario, he said, has led to companies closing down, with scores of people losing jobs because firms are scaling down.

“So in an extended family system like ours people who are working in town or doing business in cities are failing to support those in rural areas and indeed the whole country should brace itself for a dark future,” he said.

An official from the Ministry of Finance, who did not want to be identified, said Malawi can import essential goods and services for three months but blamed unscrupulous traders for externalising forex.

“We are aware of people who are sending money outside the country informally and we are setting up mechanisms to stop the malpractice,” said the official.

He added that some of the financial and economic hardship hitting Malawians will disappear once governments programme with the International Monetary Fund (IMF) is back on track and its traditional donors like Britain are back on board.

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