Economy

Malawi kwacha stabilizes despite economic woes

The local currency has been in free fall in recent months

19.12.2014 - Update : 19.12.2014
Malawi kwacha stabilizes despite economic woes

By Moses Michael-Phiri 

BLANTYRE, Malawi 

The Reserve Bank of Malawi has said that the country's local currency, which has been in free fall in recent months, was stabilizing.

"The kwacha is now trading at around 492.3 Malawi kwacha to the U.S. dollar from a high of 520 Malawi kwacha some few weeks back," bank spokesperson Mbane Ngwira told The Anadolu Agency.

"It is stabilizing and has been appreciating," said Ngwira.

"We expect it [the local currency] to remain strong."

Reserve Bank data also shows that total official reserves – held by the bank in order to prop up the kwacha – have risen to $478 million (or 2.5 months' worth of imports) during the week ending December 5, up from a previous $352 million.

At the same time, private-sector reserves jumped to $309 million (or 1.62 months' worth of imports) from $297 million (or 1.56 months' worth of imports) the week before, according to the bank.

Malawi's monthly export bill is calculated at some $191 million.

The Malawi kwacha has remained in free-fall since September.

In May, June and July, the kwacha had traded at 380 to the U.S. dollar. But after Malawi's tobacco selling season ended in August, the local currency fell swiftly, reaching 450 to the dollar.

The kwacha fell by over 20 percent in November alone, eventually hitting an all-time low of 520 to the greenback.

Money market experts attributed the decline to weak earnings from export commodities such as tobacco, the country's main foreign-currency earner.

"With donor aid taps dry and tobacco foreign-exchange inflows not in the system, the kwacha got weaker," Chikavu Nyirenda, an economics lecturer at Catholic University, told AA.

Tobacco sales, which concluded at the end of August, account for over 60 percent of Malawi's total foreign exchange earnings.

Malawi has an agro-based economy and therefore must contend with a seasonal foreign-exchange market, in which the local currency generally follows the local market's cyclical nature.

Nyirenda said the appreciation of the local currency was good for the national economy as it could result in stable fuel prices, which are dictated by the exchange rate.

"Appreciation of the kwacha will also ease the inflation rate," added the expert.

Malawi's inflation rate stood at 23.3 percent as of October, according to Malawi's National Statistical Office.

-Measures-

Ngwira, the Reserve Bank spokesperson, attributed the kwacha's slight appreciation to local economic developments, such as the tightening of monetary policy and other instruments, like liquidity reserve requirements for foreign exchange deposits.

Following the directive on liquidity reserve requirements – a fraction of deposits that commercial banks must keep with the central bank, currently at 15.5 percent –reserves on forex deposits are to be made in kwacha, not in their respective currencies.

"We have ensured that commercial banks should avail the market with forex that is there," Ngwira told AA.

He explained that minor export proceeds from sugar, tea and pulses had also boosted Malawi's foreign exchange reserves, stressing that forex gleaned from tobacco sales lasted only two months.

In an exclusive interview with AA in mid-November, Minister of Finance, Economic Planning and Development Goodall Gondwe said he was working on shoring up the kwacha.

"The economy will be back on track; the government is working on something to stabilize the kwacha," he told AA at the time.

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