The Malawi Kwacha has weakened 1.4 percent to 142.7 against the US dollar from the 140.6 it was set at until October 28 and the International Monetray Fund (IMF) has said structural reforms are needed on exchange rate.Kwacha is trading at K142 to a US Dollar from K140 on official rate but on the black market, the currency is trading at 190.
We have made a good progress on discussion with the authorities on micro-economic and structural policies to address Malawi economic challenges and keep the country on the path of sustained economic growth, said a statement at the end of IFM mission in Malawi.
The statement issued November 11, 2009 by IMF external relations department said: The authorities recognised that a tight 2009/10 fiscal policy stance is essential to reduce inflationary and real exchange rate pressures and help to bolster services.
Signed by head of IMF mission, Janet Stotsky, the statement said: The mission endorsed recent efforts by Reserve Bank of Malawi to mop up excess liquidity. The mission also support the authorities committment to a more flexible exchange regime which would lead to a better balance between supply and demand of foreign exchange.
Structural reforms are also needed to ensure that over time the exchange regime support more rapid growth in exports relative to imports, said IMF statement.
President of the Economics Association of Malawi, Thomas Munthali said the problem Reserve Bank is grappling with now is extent to which they can devalue.
We are happy that government has realized that a strong kwacha is not good for the economy, Munthali is quoted by Bloomberg.
Samuel Malitoni, RBM spokeman and legal counsel said the shortage of foreign currency has been caused by falling tobacco prices, a decline in foreign portfolio investment and the global recession.
Reserves currently stand at $335.4 million, or just 2.69 months of import cover.
Central bank spokesman said he didnt expect the kwacha would slip any further.
As the central bank we do not have the mandate to devalue or even control the kwacha, that is the duty of the government and the position now is that the kwacha should not be devalued because it will cause more harm than good, Malitoni is quoted by Bloomberg.
Malawi has earned 8 percent less from tobacco this year after a drop in prices offset increased production, Malitoni said. At the same time, the global recession has reduced remittances from Malawians living abroad.
The recession also prompted international investors to sell as much as 57 percent of their holdings in the stock market in the second quarter, Malitoni said.
During the third quarter of 2009, there has been virtually no foreign participation on the treasury bills market, he added.
(Additional reporting by Bloomberg)
Post published in: Economy