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Devaluation not solution, European Union says

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Betchani Tchereni

European Union Ambassador to Malawi Rune Skinnebach has said devaluing the Kwacha is not a solution to the misalignment between the local currency footing against peers.

Skinnebach said this Monday evening in Blantyre during an interaction with journalists under Blantyre Press Club.

The remarks come after the International Monetary Fund last week said the Kwacha remains misaligned with some of the country’s major trading currencies, notably the United States (US) Dollar, the Great British Pound, the Euro and the South African Rand.

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This is despite that Capital Hill effected a 25 percent devaluation of the local currency in May this year, a development that saw the Kwacha slumping from around K840 to the US Dollar to K1,031 to the green buck.

The EU Head of Delegation said, practically, devaluation would not work for net-importing countries such as Malawi.

He added that, for example, the 25 percent devaluation effected in May this year did not solve the problem as there are still levels of misalignment on the foreign exchange market.

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“Malawians should brace themselves [for tough times] because the structural budget for the past 10 years is a sign that the country has been living beyond its means and, to correct this we need to cut on expenditure whose impact can spill over to other macroeconomic indicators,” he said.

In May this year, the Reserve Bank of Malawi devalued the local currency by 25 percent, a move aimed at giving the Kwacha its true value and aligning it with the then trends.

While the official exchange rate showed that the Kwacha was trading at around K850 against the dollar, it was around K1,000 on the black market.

Nevertheless, the EU Ambassador said the regional block is impressed with how Malawi is dealing with corruption and abuse of funds.

“There has been progress since cashgate but the real assessment will be seen because we have an expert mission from Brussels which is in Malawi to assess Malawi’s readiness for direct budget support,” he said.

Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni agreed with him.

Tchereni said the solution for the country lies in a good manufacturing sector that should give Malawians alternatives to imports.

“What we need is a vibrant manufacturing sector where we are able to make products otherwise under the current circumstances even if we devalue by 1000 percent, nothing will work,” he said.

On engaging the media, Skinnebach said the EU understands the importance of the media in informing the public and holding the government to account in its operations.

Blantyre Press Club President Blessings Kanache lauded the ambassador for engaging with journalists.

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