Professor of Economics at the University of Malawi (Unima) Winford Masanjala has said last Wednesday’s devaluation of the Kwacha was inevitable.
On Wednesday, the Reserve Bank of Malawi (RBM) announced a 44 percent devaluation of the local currency which saw the Kwacha sliding from K1180 to the dollar to K1,700.
Making a presentation during the 2023 Economics Association of Malawi (Ecama) Annual Conference in Mangochi on Friday, Masanjala, a former Secretary for Economic Planning, said given the situation in the micro-economy, where economic sectors are in crises, devaluation was inevitable.
“We have a crisis in the real sector that the economy is not growing. We have a crisis in the monetary sector where inflation and interest rates are going up.
“We also have a crisis in the fiscal sector in that the government is not able to raise enough revenue to support government functions and therefore the government is under debt stress. And then we have a problem with balance of payment in which Malawi is not exporting enough to support its imports,” Masanjala said
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He noted that given the situation, a country which does not have enough reserves cannot have an exchange rate which is overvalued.
But Masanjala was quick to fault the magnitude of the weakening of the local unit, saying 44 percent was too huge for the economy to absorb.
“There was no need to have a shock devaluation of 44 percent. We could have been doing this overtime and that would have reduced the shock effect on the economy,” Masanjala said.
He underscored the need for Malawi to urgently agree on what to export to get forex.
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The seasoned economist said there is a need to have diversified sources of forex other than the traditional tobacco, citing mining as one area which could help the country.
But Masanjala bemoaned what he called lack of urgency in concluding mining deals, citing an example of the Kanyika Niobium Mine in Mzimba and Kasungu whose negotiations started around 2011 but up to now a Mining Development Agreement is not yet on the table.
“For a country that has a serious shortage of foreign exchange like Malawi, you cannot afford to have negotiations over a Mining Development Agreement covering over 12 years and still not be concluded,” Masanjala said.
Currently, Malawi is implementing the mega farms concept, focusing on three value chains of groundnuts, soya and maize as one way of generating forex.
But Masanjala questioned the wisdom behind focusing on maize in the mega farms, saying maize consumes more forex and does not contribute to forex generation.
“Let me not hear somebody saying mega farms yes, but we are producing maize. Because maize uses foreign exchange but does not contribute to the generation of foreign exchange. So maize does not solve our problem,” he said.
But new Ecama President Betchani Tchereni said maize is still crucial in taming food inflation.
Wednesday’s devaluation has seen a sharp rise in the price of fuel which has also triggered a significant jump in transport costs.
