The Reserve Bank of Malawi on Monday devalued the kwacha by about 50 percent to contribute to government efforts to reach an early agreement with the International Monetary Fund, Bank Governor Charles Chuka has said.
Malawi is in discussions with the Fund on a new aid programme crucial to unlocking the much needed aid held up by the country’s key donors.
The Fund suspended a $79 million aid facility due to conflict withÂ former president Bingu wa Mutharika, who died after a heart attack last month. The IMF had called for a 50 percent cut in the value of the kwacha.
“The devaluation of the kwacha and the liberalisation of the foreign exchange market are expected to contributeÂ to government’s efforts to reach an early agreement with the IMF,” Chuka said.
The currency adjustment, Chuka said, is further expected to have the effect of reducing demand for imports of consumer goods in favour of domestically produced goods.
RBM said it was also prompted to cut the kwacha because most foreign transactions were being conductedÂ on black market rate nearly double the official rate.
“At K250 per dollar, the exchange rate is well adjusted as the black market is certainly under-devalued,” the Reserve Bank of Malawi said in a statement.
“Most importantly, it should also, together with the liberalisation of foreign exchange market, contribute to governmentâ€™s efforts to reach early agreement with the IMF which should lead to unlocking donor flows in the next few months,” it said.
He said that from now on, international tourists will be allowed to settle bills in any convertible currency.
Chuka, addressing his first press conference after his appointment a fortnight ago, also said that tobacco proceeds, whichÂ account for 60 percent of Malawi’s foreign currency revenues, can now go through commercial banks instead of through the central bank.
“All forex restrictions announced last year in August on forex bureaux have been suspended since this is now a free floating foreign exchange regime,” Chuka told reporters.
HeÂ said the devaluation was met by higher sales for tobacco at auction.
He expected the impact of the decision on prices to be minimal because most prices already reflected the black market rate at which most suppliers have been sourcing forex.