Government worsening kwacha plunge

Over-expenditure in government has been blamed for worsening the depreciation of the Malawi kwacha whose rollercoaster fall saw it slipping to a record K395 to one United States dollar yesterday in various banks in the country.

Meanwhile, the Consumers Association of Malawi (Cama) has blamed President Joyce Banda’s frequent travels for the excessive expenditure in government.

The kwacha, which just two weeks ago was trading at an average of K370, was by the start of business yesterday selling at K395 at National Bank of Malawi while the Malawi Savings Bank was offering the green buck at K391.67.

Financial Market Dealers Association (Fimda) President Alfred Nhlema said yesterday while expected excessive demand of foreign currency over the lean period was the main reason for the sharp fall of kwacha, increased government expenditure was worsening the situation.

“We have noted that there is little fiscal restraint on the part of the authorities,” said Nhlema, adding: “The continued increase in government expenditure is exerting pressure on demand of foreign currency, thereby defeating the whole purpose of a tightened monetary policy stance.”

He said the situation requires a balancing act between fiscal and monetary discipline for the country to achieve a stable economy.

Nhlema said the market appreciates the authorities’ tight monetary stance.

However, Nhlema said a reasonable fall in the currency is usually expected at this time of which falls within the traditional lean period where export proceeds are at their lowest and import demand is normally at its peak.

He said the fall in the kwacha was also anticipated given that the central bank does not have sufficient reserves to intervene in the market to influence the price as it happens in other countries where the exchange rate is supported by weekly auctions.

He, however, predicted that the exchange rate will experience less pressure between the months of April and September 2013 due to an influx of tobacco dollars.

Nhlema said the kwacha is expected to stabilise up to May 2014 due to increased donor inflows for the support and running of the tripartite elections.

“That said, the economy needs to work on moving from a predominantly importing country to a predominantly exporting country to arrest this worrying occurrence in the long term,” said Nhlema.

Cama Executive Director John Kapito said yesterday President Joyce Banda’s frequent travels was one of the reasons government was spending excessively, thereby exerting more pressure on the country’s currency.

This is a very sad development as the continued floatation of the kwacha has not proven to be a solution to Malawi’s economic challenges,” said Kapito.

Ministry of Finance Spokesperson Nations Msowoya said he needed time to consult his superiors before commenting on the story.

Reserve Bank of Malawi governor Charles Chuka last year told reporters that he could not see that kwacha falling to as much as K400 to the dollar as it would be difficult to attract demand at that rate of an exchange rate.

“I know some people are predicting that the kwacha will fall to as much as K400 or K500 to the US [United States] dollar. But look, who can afford to buy US dollars at that price? I would say nobody. Not even companies. So even the forex trader would have to limit the price adjustment or else, they would have nobody to buy their forex,” said Chuka.