Local businesses say the first quarter of this year has not been easy for their enterprises due to the continued depreciation of the kwacha against major trading currencies.
Reserve Bank of Malawi (RBM) figures show that in the first quarter, the kwacha depreciated against all major currencies, shedding K4.16 against the dollar, K6.21 against the British pound and K9.22 against the rand.
In an interview on Monday, Black Indigenous Business Network trustee George Macheka said the continued depreciation has pushed traders to raise prices of their goods.
He said: “As it is, the way out is to reduce importation of goods that are locally produced through the production of high quality goods that can compete on the market.
“We believe this will help in containing the high prices.”
Cross-border traders Association of Malawi president Steve Yohane agreed that the depreciation of the kwacha, coupled with the shortage of foreign exchange, has hit traders hard.
He said the current business environment has proved difficult for traders in international business as the cost of goods have kept rising on account of the volatile kwacha.
“The depreciation and the non-availability of foreign exchange on the market is making our business difficult. Prices of items have kept changing, making it hard to plan and make reasonable business,” said Yohane.
The Economist Intelligence Unit (EIU), the research and analysis division of Economist Group, has projected that the kwacha will slide further from K824 to a dollar to K837 this year and K937.4 by 2026.
EIU says a low stock of reserves and the high probability of a sudden end to foreign currency inflows remain the major downside risks to exchange rate stability over the forecast period as monetary authorities will not be able to support the kwacha if these risks materialise.
Financial Market Dealers Association of Malawi president Mclewen Sikwese in an earlier interview observed that the kwacha continues to suffer from both supply and demand misalignment as well as speculative element due to the lack of confidence in the future value of the kwacha.
Troubled by the declining forex position, RBM recently announced that it had revised requirements for mandatory sale of export proceeds with immediate effect, a move meant to improve forex liquidity in the market. Under the new provision, RBM said all exporters shall sell a minimum of 30 percent of their export proceeds to the RBM through authorised dealer banks while retaining, at most, 70 percent of the proceeds in their foreign currency denominated accounts.