Malawians had a rude awakening Thursday as commodity prices started rising in the aftermath of the Wednesday night’s 44 percent devaluation of the local unit, the Kwacha.
After months of hesitation, the Reserve Bank of Malawi (RBM) on Wednesday announced the lowering in value of the local unit where the dollar is now selling at K1,700 from K1,180.29.
Some traders responded by adjusting upwards prices of some basic commodities on the market, with some putting up cautionary statement.
Other vendors were reportedly hoarding commodities in anticipation of a price increase.
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For example, a bag of cement which was selling at around K16,000 prior to the devaluation was now being sold at K20,000.
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Some seed suppliers announced plans to push up price for the commodity within two days in response to the devaluation.
The devaluation stemmed from the central bank’s assessment of the Kwacha, which showed that supply-demand imbalances remained in the market despite adjustments of the rate through the auction system.
However, the parallel market was yet to react to the move but spot-checks noticed that misalignments remained prevalent as the green buck was selling at an average K1,900 on the black market Thursday.
Most authorised dealer banks promptly reacted to the rate change by adjusting their TT rates.
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Commentators feel that apart from pushing up commodity prices, the devaluation would have a bearing on the country’s debt portfolio.
By Wednesday this week, Malawi’s total public debt was at K9.41 trillion out of which domestic debt was at K5.36 trillion while external debt amounted to K4.04 trillion under the then exchange rate.
However, with the devaluation, which has seen the local unit trading at K1,700 to a dollar, the value of the country’s external debt could move to K6.86 trillion, moving the total public debt further up to K12.23 trillion.
The development means that the country has gone beyond the debt stress status as the debt to GDP ratio has surpassed 100 percent because the country’s GDP as of this year is K12 trillion.
Malawi Economic Justice Network Bertha Phiri said the only way to deal with the rising debt is implementation of debt reduction strategies that government has been putting in place over time.
Phiri said there are a lot of strategies that have been put in place to arrest the rising debt but implementation has been a problem.
Malawi rising public debt has been among the thorns that have been preventing it from accessing the much needed Extended Credit Facility from the International Monetary Fund (IMF).
Meanwhile, the Ministry of Finance has announced that it will on Monday announce to Malawians the strategies it has put in place to cushion Malawians from the social and economic ills that they may face due to the devaluation.
RBM data show that the official forex reserves for August 2023 decreased to $239.56 million or 0.96 months’ of import cover, against the recommended rate of 3.9 months for credit-constrained economies.
In May last year, government devalued the Kwacha by 25 percent in what was seen as a return to a market-determined foreign exchange rate regime to prop up dwindling forex reserves.
