Economics Association of Malawi (Ecama) President Lauryn Nyasulu has backed the move by the Reserve Bank of Malawi to devalue the Kwacha.
On Wednesday night, RBM announced a 44 percent devaluation of the local unit which has seen the dollar jumping from K1,180 to K1,700.
In an interview on the sidelines of the 2023 Ecama Annual Conference in Mangochi, Nyasulu said the overvalued Kwacha was acting as an incentive for imports and at the same time hurting exports.
“There are so many areas that are hindered when you have an overvalued currency. Yes, in the short term, there will be impacts that will be felt by every Malawian.
“It may bring in inflationary pressures which are quiet expected but if the rate at which the Kwacha has been devalued is going to be a market clearing rate, then the expectation is that the macroeconomic environment is expected to stabilise,” Nyasulu said.
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She was, however, quick to note that stabilisation of the economy is not going to happen on its own, saying last year, the currency was devalued by 25 percent but the parallel rate kept on moving.
University of Malawi economist Jacob Mazalale also described the devaluation as long overdue.
According to Mazalale, Malawi had been living in an illusion for some time and that it was very clear that the local currency was misaligned and needed to be devalued.
He said going to the bank, it was very rare to find the dollar at the official rate of K1,180.
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Mazalale said he expects the forex that was circulating in the black market to find its way in the formal system.
Mazalale said while prices of goods and services are likely to go up, they are likely to stabalise in the short term.
He further said he expects development partners to help Malawi cushion the country’s poorest in the aftermath of the devaluation.
In a statement on Wednesday night, RBM Governor Wilson Banda said devaluation stems from an assessment conducted by RBM that showed that supply-demand imbalances remain in the market despite adjustments of the exchange rate through the auction system.
According to Banda, the assessment also revealed that arbitrage opportunities have resurfaced in the market due to the mismatch in exchange rates in the cash and Telegraphic Transfer markets.
