IMF Defends Kwacha Devaluation, Stresses Broader Reform Package

The International Monetary Fund (IMF) has defended its recommendation for a Kwacha devaluation, clarifying that the move aims to establish a unified, market-clearing exchange rate, not an uncontrolled depreciation.

In a statement issued last night, the IMF emphasized that aligning the rate helps direct foreign exchange through official channels, enhancing access for legitimate trade and investment.

This approach, the Fund said, helps combat distortions and corruption driven by the parallel market.

However, the IMF acknowledged that without supporting reforms, devaluation can fuel inflation, speculation, and slow growth—especially in economies like Malawi’s that depend heavily on imports.

The Fund stressed that exchange rate reform must go hand-in-hand with improved fiscal management, including better tax collection and more efficient government spending.

It also highlighted the need for effective debt management to reduce dependency on borrowing.

Structural reforms are essential, the IMF added, to diversify exports, attract investment, and raise productivity.

Social safety nets were also cited as crucial to protect vulnerable populations during the transition.

The IMF believes this holistic strategy will support Malawi’s Agriculture, Tourism, Mining, and Manufacturing (ATMM) plan.

Meanwhile, RBM Governor Macdonald Mafuta Mwale has argued that exchange rate unification requires eliminating the parallel market, not devaluation alone.