The Kwacha Tuesday fell marginally by 3 percent from K1,063 to the United States dollar to K1,095, figures from the Reserve Bank of Malawi (RBM) show.
This is the second time in two months that the Kwacha has depreciated after recording a 2.6 percent depreciation in June.
The marginal depreciation comes at a time the greenback continues to trade at as high as K1,800 on the parallel market.
Last month, the World Bank expressed concern over the high foreign exchange premium, currently seen at above 50 percent.
Speaking at the launch of the 17th Malawi Economic Monitor (Mem), World Bank Malawi acting Country Manager Efrem Chilima said although the government has started implementing foreign exchange auctions to boost foreign exchange reserves and address the misalignment of the exchange rate, the premium is still too high.
“However, the premium is still above 50 percent and it is unclear what the government’s plan is to address this situation,” Chilima said.
The concern by the World Bank comes as the spread between the official and parallel market dollar rates has significantly widened over the past couple of weeks.
National Planning Commission Director General Thomas Munthali said forex auctions by RBM—as a tool for realigning the currency— are promising but was quick to point out that there remain some tough questions that Malawi needs to answer around whether it needs to let the currency go.
“Not devaluing, but letting it completely go, and then finding its place overtime. It might be hard in the first months or year but, when it settles off, hopefully we can be singing a different story.
“But when all this is said, you realise that it is production that matters. If you don’t produce, your fiscal space gap will still continue [to narrow]. Your forex challenges will exacerbate; your debt sustainability will be compromised. How do we produce? One of the key aspects— and this is why this Mem is very key— is energy,” Munthali said.
Associate Professor of Economics Winford Masanjala said structural transformation cannot happen overnight, saying, this year, Malawi just needs to rely on trade financing and some forex that will come for donor projects.
He underscored the need for an incentive scheme that would incentivise the private sector to do the needful.
“If I can go back to when Bingu [wa Mutharika] was the president, we had a similar crisis. Bingu’s solution was scapegoating. We are in this trouble because certain buyers of cotton and tobacco are doing this and that. Bingu expelled cotton buyers and tobacco buyers in 2010. It didn’t improve the situation.
“Then they introduced surrender requirement; it didn’t improve the situation, Then they introduced other restrictive measures; they didn’t improve the economy. We are in this [problem] one more time. Economics is a real science and it has laws that say ‘when you do this, that will follow’.
“We are not doing the needful. We are not incentivising the private sector enough and on the forex market, we are not giving the right signals,” Masanjala said.
He observed that if the premium on the forex market is more than 50 percent and the authorities devalue by 30 percent, the devaluation will not achieve anything as the market has already priced at 50 percent.
