Finance Minister Ken Lipenga has said Malawi’s parallel foreign exchange market has collapsed as premiums over official rate have fallen to as low as five percent.
The minister said this on Tuesday in a statement detailing achievements of government’s Economic Recovery Plan (ERP) up to date.
The minister’s observation have been corroborated by Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira.
Said Lipenga: “As the situation continues to improve, exchange rate rates should converge and thereby encouraging foreign exchange flows into the banking system.”
Lipenga faulted the fixed exchange rate regime which Malawi was using, saying it punished farmers who produce 80 percent of agricultural output and more than 60 percent of exports by denying them the benefits that would have been accrued if the rate were determined by the market.
The minister said Malawi’s neighbouring countries have low inflation rates today because their exchange rates are relatively stable not through the fixed exchange rate regimes.
Lipenga said the devaluation and the floatation of the kwacha have directly benefitted exporters, beginning with tobacco farmers during the 2012 market season.
In an interview, Kaferapanjira said the chamber has also observed that at the moment, the difference between official and parallel rates have narrowed significantly. He said most foreign exchange bureaus are selling their foreign exchange to commercial banks.
Said Kaferapanjira: “If you look at today’s newspaper, National Bank is buying euro at K445 while the black market is buying at around K425 and K430 if you negotiate. So, the premiums have weighed in favour of commercial banks and these banks are buying [forex] from the market.”
Kaferapanjira also noted that the devaluation and the floatation of the kwacha are an important tool for aligning the value of the kwacha to currencies used by Malawi’s major trading partners.
He said the devaluation has also basically wiped out the unnecessary demand for foreign exchange as the commodity is being allocated to profitable ventures and not luxurious ones.
A foreign exchange black market dealer in Lilongwe Old Town on Tuesday bemoaned poor business transactions in recent times, saying most dealers are compelled to align their rates to commercial banks for them to be afloat.
The dealer, who declined to be named , also said most players on the forex black market are resorting to selling huge chunks of foreign exchange to banks that are buying foreign currency at a higher rate.