The Economics Association of Malawi (Ecama) has pressed government to reclaim its stalled programme with the International Monetary Fund (IMF), the Extended Credit Facility (ECF).
Ecama said in a statement released on Friday that returning to the ECF will help stabilise the economy and restore confidence in the short-term.
The association has also warned that further delays in devaluing the local currency would hurt the country through escalating inflation rate due to a build-up of devaluation speculation.
Finance and Development Planning Minister Dr Ken Lipenga on Monday said government is still engaging in discussions on the same.
But he pointed out that devaluation without sufficient foreign reserves could be devastating to the economy.
In the statement titled Devaluation, Foreign Exchange and Resultant Inflation released at the weekend and signed by the association’s vice-president Edward Chilima, Ecama, however, notes that devaluation on its own may not solve all the challenges gripping the country.
“One of the conditions for the IMF is that the kwacha be devalued to realign it to market forces. Our recommendation is that all efforts be done to win back the IMF programme by agreeing to the devaluation proposal,†said Ecama.
The association argued that in Malawi, devaluation will not increase the supply of forex, but rather help the country to unlock millions of dollars in aid currently being withheld by Malawi’s key donors under the Common Approach to Budget Support (Cabs).
It says devaluation should always be linked to its potential to sustainably expand the supply of forex, saying so far, export promotion has proven to be weak in Malawi and that forex-demand management “is non-existent to Malawi.â€Â
“What this group is recommending is an implementation of a sharp devaluation, like a bomb blast, but ensure that when prices go up abruptly, safety nets are ready in place to protect the poor,†it said.
The association suggested some forms of safety nets, which include cash transfers through public works to vulnerable groups, increase in civil service wages and tax cuts to cushion people from the devaluation effects.
The association has applauded government’s move to promote export crops that have potential to generate substantial forex for Malawi. It cited the recent intervention in supporting the cotton sector with a K1.6 billion package.
Ecama has also recommended deliberate policies by government to stimulate export production in areas such as cotton, groundnuts, gemstones and other agricultural export crops as a way of improving the supply side of foreign exchange.
In an interview to respond to Ecama queries on Monday, Lipenga welcomed the association’s call, but was quick to stress that he is still in the middle of discussions with the IMF, among others, on means of restoring the ECF as quickly as possible.
He cautioned that devaluation, as advocated by Ecama, without adequate reserves in stock, could be catastrophic to the country, especially the poor.
