ActionAid seeks cushion against Kwacha fall

ActionAid Malawi has called on Capital Hill to devise deliberate policies and strategies to cushion vulnerable women, children and the youth against the recent devaluation of the local currency, the Kwacha.

The international organization, which is a member of Feminist Macro-Economic Alliance-Malawi, has also bemoaned Malawi government submission to external pressure to devalue the Kwacha without proper strategies to cushion Malawians, warning that such a policy stance spell doom for households living in poverty and already struggling to make ends meet.

Reserve Bank of Malawi (RBM) on Thursday last week announced a 25 percent devaluation of its currency in a bid to shore up dwindling foreign exchange reserves and curb inflation.

The 25 percent magnitude of the devaluation, came into full force last Friday, and is one of the highest in a decade.

The last time the country had a major currency devaluation was in 2012 when the Malawian kwacha was devalued by 49 percent during former president Joyce Banda administration.

Reacting to the devaluation in relation to ActionAid Malawi’s work in the country, the organisation’s Executive Director Pamela Kuwali said it was imperative for government to focus its efforts on advancing a well-being economic approach.

She said such a notion calls for re-centering of economy around care and wellbeing of people and planet as an alternative to the dominant regressive neoliberal approach advanced by imperialist countries and multinational corporations headquartered in the global North.

“Devaluation worsens inflationary pressures and hurts those living in poverty most as they struggle to afford even the most basic necessities including food. Without tangible social protection measures, devaluation widens inequality as it pushes more people, especially women and children below the poverty line,” Pamela Kuwali.

Kuwali recalled that ever since world currencies abandoned the gold standard and allowed their exchange rates to float freely against each other, there has been many currencies devaluation which she said have hurt not only the citizens of the country involved but have also rippled across the globe.

She further said the differential impact of large exchange rate changes on high- and low-income consumers is important for understanding the full consequences of large devaluations, and may be informative in shaping inclusive and gender-responsive policy responses.

Previously, in its policy advice to the Malawi government, the IMF admitted that the adjustment towards a market-clearing rate may be accompanied by a temporary spike in prices.

Commenting on the same, Chairperson of NGO Gender Coordination Network (NGOGCN) Barbara Banda said intersecting crises of the Covid-19 pandemic, spiraling levels of debt, inequality, climate change and global conflict adds a deep level of urgency for Malawi to adopt just economic policy models that can deliver on gender and social justice.

Barbara Banda said, “The empirical evidence on failures of neoliberalism is well documented in Malawi and at global level, yet more often, governments in developing countries are pressurized to follow the same rafts of neoliberal policies often at the behest of the IMF and World Bank.

 For over a period of 30 years, neoliberal economic policies embraced by Bretton Woods Institutions and packaged for developing countries have caused so many of these crises, pushing our planetary and societal boundaries to the brink, and exacerbating gender and other intersecting inequalities in multifaceted ways.”

The gender movement leader also called on government and international financial institutions to take commensurate levels of action to redress the deep-rooted, historical injustices these crises are exposing.

 The movement has further warned on the dangers of implementing cosmetic safety nets programs that are usually inadequate, remain poorly funded and marred with several public social accountability challenges including on resource management.

Reacting to the devaluation hullabaloo, market and economic analyst Bond Mtembekeza observed the move is one of the last resorts a central bank can employ to stabilise a currency, but it comes with its own grave implications, especially for a net importing country like Malawi.

“In any case, economic agents import anyway and they transfer that cost to consumers which raises prices across the board. As such we should expect further pressures on inflation,” he said.

On his part Malawi University of Business and Applied Sciences economics professor Betchani Tchereni said Malawi being an importing economy, devaluation of the currency is a concern as prices of almost all commodities will rise and a section of the economy regarded as middle class will be wiped out.

In a paper titled ‘Is devaluation an option for Malawi’s current debt challenge’, economists Thomas Chataghalala Munthali and Frank Ngalande have also warned that devaluation would cause more harm than good.

“The only case for justifying devaluation in Malawi is simply making efforts to bring more of the forex into the official avenues so that those with forex should be encouraged to sell to official dealers such as banks or bureaus because the buying rate with the parallel market will not be very different,” said the duo.

According to Munthali and Ngalande, there still remains a danger of chasing the parallel market rate in an economy like Malawi, which does not produce enough exports to earn more forex.

Reads the paper: “If directing forex into the official avenues is to ever be the premise for justifying devaluation under the ECF being negotiated with the IMF currently, then it has to immediately be supported with huge initial inflows of balance of payment support from the IMF itself and the other development partners.