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Tobacco revenue fails to cushion kwacha fall

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The Kwacha has marginally depreciated against its trading counterparts despite the country being in the midst of the tobacco marketing season, a time when experts expect the exchange rate to be on a high.

This year’s tobacco market has been characterised by high rejection rates and low prices being offered for the green gold, a situation which has resulted in farmers boycotting tobacco sales and forcing the closure of the market on numerous occasions.

In its latest economic brief, Nico Assets Managers, observes that since the start of this year’s tobacco market four weeks ago, the local unit has continued to drop selling at K696 to one US dollar as at the start of this week.

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“The depreciation may partly be a result of low tobacco prices and high rejection rate that have negatively affected the inflow of foreign currency,” says Nico in the statement.

Meanwhile, statistics from AHL Group show that as at the end of last week,the country had earned US$16.4 million from the green gold after the sale of 13, 371, 690 kilogrammes.

Nico is however optimistic that the kwacha will stabilise as tobacco sales pick-up and on the back of a decline in inflation.

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“In the medium terms, the currency is expected to depreciate due to significant current account deficit and weak foreign direct investment inflows despite tobacco exports and improving forex reserves,” says the firm.

Nico further projects a drop in inflation as more households harvest their maize crop but expects the situation to be temporary as upside risks from the current food situation continues to exert pressure on the economy.

The firm has also outlined five key risks facing the economy which includes high government debt levels, delay in food assistance, insufficient power supply, banking sector risk and persistent weak export base.

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