Snap checks by The Times Business have shown that the Malawi kwacha exchange rate to the United States dollar remain misaligned, with the official rate standing at K1,700 while on the black market a dollar is fetching as high as K2,200.
This represents a K500 gap between the official rate and black-market rate.
However, the gap has narrowed by K220 as before the 44 percent Kwacha devaluation, the official rate was K1,180 against a black-market rate of K1,900, representing a K720 gap.
The snap checks further found that Authorised Dealer Banks (ADB) and official money transfer firms are offering the dollar at a higher price than the official rate, spanning between K1,810.50 and K1,990.
One of the black-market dealers in Blantyre, who spoke on condition of anonymity, said the gap has narrowed because the black-market rate was already high.
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“The prices are mostly determined by the availability of the dollar, if it is scarce whoever has it has the power to determine the price but this time around after the devaluation, the rate on the black market has not been as high because the rate was already high at K1,900,” he said.
In an interview, economist Marvin Banda said it is going to take some time for the fundamentals to realign with reality, as is seen in any market.
He said the signs are encouraging that the market is trying to clear at prices driven by supply and demand of forex.
“The question is how creative the unofficial traders will become, because their livelihoods are being challenged. They say the tougher the rules, the more creative the criminals. Whether or not we will reach a uniform price across the board is yet to be seen but it is highly unlikely due to the prevalence of the black market.
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“This resonates with the reasons given by the Reserve Bank Malawi (RBM) because no one can take advantage of the perils the currency was facing under the pegged regime because the economic fundamentals take over. The level of information the market transmits will help with the direction of the rate. Whether or not the divergent rates will merge,” Banda said.
He added: “The outlook of the Kwacha is still ambiguous. We are not out of the woods yet. The economy is out of surgery and now into the Intensive Care Unit (ICU). The next six months will be crucial, this is where external debt restructuring comes in. It will go a long way to stabilising Malawi’s debt situation, which negatively impacts the Balance of Payment (BOP) position.
“Further taxes to curb the incredibly high demand for foreign commodities and services have to be in accordance with policies that are aimed to reign in the excessive spending. These with a prudent fiscal policy can offer the nation some hope. But in the interim, the black market will fight back like a hydra; whose heads re-grow after being cut off.”
Early this month, the RBM devalued the Kwacha by 44 percent to K1,700 to a dollar in an attempt to narrow the gap between official rates and the black market.
This was the first time for a devaluation of such magnitude since May 2012 when the Kwacha was stripped off 48.8 percent of power to trade at K250 to a dollar from K168, according to midrate figures from the RBM website.
It also followed a 25 percent devaluation of the local unit in May 2022 to K1012.69 to a dollar.
The Central Bank said the development follows persisting supply-demand imbalances despite recent foreign exchange auctions, arbitrage opportunities due to the mismatch in the exchange rates in the cash and Telegraphic Transfers markets and that some market players were able to clear import bills at the new rate.
In an earlier interview, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) President Lekani Katandula said it was a tough but necessary decision by the Central Bank.
But Chief Executive Officer of the Institute of Chartered Accountants in Malawi (Icam) Noel Zigowa said the challenge that Malawi is facing will not be solved by devaluations.
“We needed to be a country that promotes productivity than consumption, hence the imbalances that we are facing. We needed to address the import-export gap by promoting what we can produce in large quantities for export. The settlement of bills at a higher rate just shows that Malawians are stranded and have no option. The main effect of this is more pain on an ordinary Malawian.
“Malawians are preparing for the next farming season and farm inputs are likely to be very expensive, fuel shall be expensive, food more expensive, eroding of employee’s salaries value etc. It is more and more pain for a Malawian and creating another season of hunger,” Zigowa said.
