Finance Minister to address the nation on Monday following devaluation of the Kwacha

Chithyola Banda, (left) who was recently appointed Finance Minister

* Yesterday, RBM announced the devaluation of the Kwacha at 44%

* From selling rate of K1,180.29 to K1,700.00 to the US$ with effect from today, November 9

* This devaluation is just as reckless as the previous one—former RBM Governor, Dalitso Kabambe

* Given that fundamentals of the monetary policy stance remains helpless and fiscal consolidation is nonexistent

By Duncan Mlanjira

Minister of Finance & Economic Affairs, Simplex Chithyola Banda will convene a press conference on Monday, November 13 from 09:00hrs to outline the measures Government has put in place to cushion vulnerable Malawians and stimulate economic growth.

A statement from Secretary to the Treasury, MacDonald Mwale says this follows the exchange alignment undertaken by the Reserve Bank of Malawi (RBM), which announced yesterday of the devaluation of the Kwacha at 44% — from selling rate of K1,180.29 to K1,700.00 to the US$ with effect from today, November 9.

In his public notice, RBM Governor, Wilson T. Banda the adjustment stems from an assessment conducted by the Bank that showed the following:

* Supply-demand imbalances remain in the market despite adjustments of the exchange rate through the auction system;

* Arbitrage opportunities have resurfaced in the market due to the mismatch in exchange rates in the cash and TT markets; and

* Spot checks on some market players indicate that the market is able to clear import bills at this rate.

“The Reserve Bank of Malawi will closely monitor developments in the market to avoid disorderly behaviour among market players that may cause excessive volatility,” said the Governor.

He encouraged the public wishing for more information and clarifications to contact:

The Director, Financial Markets

Reserve Bank of Malawi

P.O. Box 30063, Lilongwe 3.

Telephone: (265)1 770 600/1 771 600

Email: RBMDealers@rbm.mw

Reacting to the development, former RBM Governor, Dalitso Kabambe posted on Facebook that “looking at the timing, this must be a prior conditionality for extended credit facility (ECF)” that Malawi is expected to be provided by the International Monetary Fund (IMF).

“The K1,700/US$ is still below the market equilibrium”, he said, adding that Malawians “should anticipate further depreciations”.

“Furthermore, this devaluation is just as reckless as the previous one given that fundamentals of the monetary policy stance remains helpless and fiscal consolidation is nonexistent.

“There will be no recovery from the macroeconomic meltdown. It will only make the suffering experienced by Malawians worse, as prices of basic goods such as fuel, fertilizer and food items, will soar,” he said while emphasizing: “Mark my words.”

Reacting to Kabambe’s analysis, Raymond Vic Fumbula asked the former RBM Governor to share insights with the authorities on how Malawians can come out of this mess as a country.

“Politics aside, combine efforts, bwana with the Minister of Finance and [President Lazarus Chakwera]. Please help the country Chief!” he asked Kabambe, who is eyeing for the country’s President under the ticket of the Democratic Progressive Party (DPP).

Kaweko Yona Chirwa was of the opinion that if Kabambe “has solutions to the economic problems facing the country”, he not need to wait for 2025 to assist Malawians in the event he would be successful as leader of the country.

In his own analysis, Richard Muphuwa — who put a disclaimer that he is not an economist but based his Facebook post as work of research and experience in teaching international business — said his views is aimed at helping a common Malawi citizen understand what this means.

“In simple terms, currency devaluation is an economic policy that the Malawi Government has been pursuing to weaken the Malawi Kwacha.

“When a currency is devalued, it loses its value and people’s buying power is reduced because products and services become more costly or expensive. These are products and services that are imported.

“Imported products and services become expensive because importers spend more to get foreign currencies with which they use to buy products or raw materials or inputs outside the country for their production locally.

“So why do governments devalue their currencies? There are two major reasons — to boost exports of local products by making them more affordable compared to foreign products.

“A weak domestic currency makes a nation’s exports more competitive on the global market while making imports more expensive,” he said adding that the second reason is to reduce the country’s sovereign debt burdens.

“However, currency devaluation can have unintended consequences that are self defeating:

1) Prices of products and services rise creating more burdens for the population;

2) If the country has fewer products to export, the currency devaluation policy only hurt importers and by extension consumers;

3) It reduces people’s buying power meaning they will get fewer items from the shop floor than they used to a few days ago.

On how to manage life after massive currency devaluation, Muphuwa suggested to the public that financial priorities must be identified and also to reduce spending on non-essential things as well as to pay debts quickly if one is able to and be debt free.

“Having debts in an economic recession will create more problems for you in the long term,” he added, while also emphasizing that the public needs to re-evaluate their career or job situation and decide what they need to do to increase their income levels.

“If you have never sat down to budget your activities and expenses, this is the time to get on a budget. Be in control of your financial situation, and live within your means.”

Meanwhile, Friends Connect Malawian TV reports that Seed Co Malawi Limited has increased all its unsold seeds effective today, November 9 and quoted the company’s sales & marketing manager, Dennis Mdzalimbo as saying this follows the 44% devaluation of the Kwacha.

However, his statement advised Malawians to deposit or pay at the office for the already sold seeds as the new price will only be on the unsold stock.