The Kwacha lost ground against the country’s major trading currencies in the first five months of 2021, latest figures from the Reserve Bank of Malawi (RBM) show.
For example, the Kwacha was recorded at a midrate of K800 to a dollar and K1,191.5 to a pound at the end of the month of May, representing a 3.2 percent and 8.8 percent drop, respectively, when compared to the K775 to a dollar and K1,094.9 to a pound recorded on January 4 2021.
Against the Euro, the local unit lost value by 5.6 percent recorded at K1,042.5 in May from K986.5 in January while against the Rand the Kwacha dropped by 10 percent to K62.2 in May from K56.5 in January.
A Market Intelligence Report published by the RBM indicates that the Kwacha lost 6.5 percent against the dollar between April 2020 and April 2021.
It further says the year-on-year exchange rate developments for countries in the sub-Saharan African region indicate that the South African Rand and Namibian Dollar appreciated by 17.2 percent each in April 2021, while the Mozambican Metical, the Botswana Pula and the Ugandan Shilling appreciated by 6.5 percent, 5.4 percent and 3.2 percent during the same period, respectively.
“However, currencies of the rest of the countries recorded annual depreciation rates of 24.1 percent for the Zambian Kwacha; 18.6 percent for the Angolan Kwanza; 5.1 percent for the Kenyan Shilling; 4.5 percent for the Rwandan Franc; 2.3 percent for the Nigerian Naira; and 0.9 percent for the Tanzanian shilling,” reads the report.
In an interview, President of the Financial Market Dealers Association (Fimda) Client Mclewen said the depreciation of the Kwacha is a reaction to the buildup of pressure from foreign exchange supply and demand imbalances the country has been experiencing since late 2018.
He said the pressure buildup has been worsened in the short term by worsening foreign currency supply and increased demand for foreign currency.
“Covid had a huge impact on the traditional foreign currency suppliers such as international organisations, foreign investors and exporters with significant slowdown in activity noticed across as the world economy slowed down in trying to contain the virus.
“As supply declined, demand was picking up as importers rushed to pay their obligations fearing an impending depreciation. There was also new demand from national initiatives such as the AIP which added extra burden on the scant foreign currency resources,” Mclewen said.
He added that the country continues to witness a foreign currency demand and supply mismatch, which has slightly improved due to the ongoing tobacco marketing season thereby reducing pressure on the kwacha in the very short term.