The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has called on the government to work towards ensuring what it calls an exchange rate unification.
Exchange rate unification is the process of eliminating multiple or parallel exchange rates in a country to establish a single, market-driven rate for all foreign currency transactions.
The process removes market distortions, currency premiums and opaque allocation systems.
In a position paper issued on Wednesday, titled ‘A Call for Action: The Urgent Case for Exchange Rate Unification’, MCCCI says the country’s multiple exchange rate system is worsening foreign exchange shortages, thereby discouraging investment and constraining economic growth.
However, economists perceive the proposal as an indirect call for currency devaluation, which they say could bring short-term devastating impact on Malawi.
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In the paper, MCCCI says while the official exchange rate has remained around K1,750 to the United States Dollar, parallel market rates have ranged between K3,500 and K4,500 to a dollar due to persistent foreign exchange shortages.
Its figures show that the gap between the official and parallel market rates widened from less than 25 percent in 2021 to over 100 percent by 2025, hence the distortions.
“The trends suggest that the current multiple exchange rate system is becoming increasingly difficult to sustain and is generating significant economic distortions,” MCCCI says.
The chamber proposes a phased implementation programme that includes establishing a transparent interbank foreign exchange market, gradually removing administrative controls and introducing measures to protect vulnerable households from potential adjustment costs.
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The private sector players’ body calls for the removal of export surrender requirements, the gradual elimination of administrative controls on forex allocation and stronger fiscal discipline to complement exchange rate reforms.
However, economist Marvin Banda said exchange rate unification would require devaluation of the Kwacha, something Malawi cannot afford due to its effects.
“The idea brought forth by MCCCI is noble and, in other circumstances, practical.
“However, it assumes the same critical mistake that the 2023 currency realignment did—that the black market will stand still, which it will not,” Banda said.
Economics Association of Malawi President Bertha Bangara Chikadza said a sharp devaluation would significantly increase the cost of imports in the short term.
She said while, in theory, unifying the exchange rate with the parallel market rate would encourage forex to flow through formal channels and make Malawi’s exports cheaper in dollar terms, the measure was difficult to implement because of the country’s structural challenges.
“We need to deal with the cause of this problem. In most cases, parallel markets are a result of macroeconomic imbalances. As such, we need to address those imbalances,” she said.
Both the Reserve Bank of Malawi and the Treasury were yet to respond to our questionnaire on the matter.
In 2023, the government devalued the Kwacha by 43 percent in an effort to align the official exchange rate with that of the parallel market.
However, the expected gains were not realised and the gap between the two rates continued to widen.
