Devaluation is ‘too little, too late’ to save Malawi

By Our Correspondent

A devaluation that is designed to cheapen a nation’s currency and thereby increase its exports at other countries’ expense and reduce imports. Such devaluations often lead to trade wars.

The recent devaluation of the Malawi Kwacha by 10% has confirmed the romour making rounds  that President Bingu wa Mutharika is not an economist. Former President Bakili Muluzi only used the terminology of Economic Engineer to sell Bingu. How could a qualified Economist devalue the kwacha after farmers have already sold their farm produce at lower values?  Devaluation is one of the macro-economic strategies independent Central Banks use to correct macro-economic fundamentals in an economy. There  are three reasons domestic currencies are oftentimes devalued. The first reason to promote export trade. The second reason is to attract foreign direct investments. The third reason is to improve the productivity of donor aid inflows. By now most of the agricultural produce has already been sold and poor farmers have received fewer kwacha amounts due to the overvalued kwacha. These farmers have lost the opportunity to realize more income for them to buy next year’s farm input. Some have even failed to pay their farm workers. As of now the political climate in Malawi is still volatile. Therefore owners of foreign capital cannot risk investing in Malawi. Lastly without donor aid coming from our traditional cooperating partners, there no way the devaluation will help to improve productivity. The only reason in Bingu’s head is to win the lost support from the IMF and World Bank. This may take a little while before agreements are regained. The loser is the poor villagers. With the 10% devaluation on the kwacha prices of commodities will start to skyrocket, pushing the poor between a hard surface and a rock. Aggravated by the overzealous tax regime in the zero budget, the poor are in for hard times to come. Citizen who know economics are asking why the delay to devalue by the president? The answer is simple and straight forward. Bingu does not understand devaluation. Just as he had promised citizens for a stable domestic currency, he never wanted to devalue it lest citizens lose faith in him. Bingu suffers from male chauvinism. He believes in himself. Everything positive taking place during his watch is his personal achievement. This is why Bingu does not delegate public functions. Now is the future of Malawi companies that import raw materials. These companies have to look for more kwacha’s to settle old bills. This a death pill to some of the small companies. But even the 10% devaluation is not enough. The best rate should have been K180/dollar to make our products competitive again on the world market. Malawi’s economy is folding up. The modern economy is being replaced by the primitive economy in which the exchange was bartering. The Chiefs who are offering blind support ate accomplices in the criminal act. It is Bakili Muluzi who should explain where he had found Bingu.?