Farmers Union of Malawi (FUM) has cried foul at the appreciation of the kwacha, saying it suspects an invisible hand behind the gain which will give farmers a raw deal.
Briefing journalists in Lilongwe yesterday, FUM president Alfred Kapichira-Banda said his organisation is disturbed that smallholder farmers—who contribute about 40 percent of the country’s gross domestic product (GDP)—will continue to be the most impoverished.
He said: “What is stressing is that when the farmer was buying the inputs sometime in early January or trading at K750 against a dollar.thereabout, the kwacha was
“But now, when he [the farmer] is taking his produce to the market, the kwacha is at K690. That is excluding the charges which will be incurred in the case of tobacco farmers. Should we say we are moving forward?”
Kapichira-Banda also said Minister of Finance, Economic Planning and Development Goodall Gondwe’s remarks during the Mid-year Budget Review that the point of exchange rate equilibrium had been reached has also sent out a strong message.
He said Gondwe’s remarks and the continued appreciation of the kwacha have threatened markets for most growers due to the anticipated huge losses.
Said Kapichira-Banda: “The union is mindful of the fact that since April 2012, the country’s exchange rate regime was liberalised and now swings according to forces of demand and supply of the foreign reserves on the market.
“The current pace and timing of the appreciation is shocking and compels one to suspect that there is an invisible hand behind the current movement.”
But Treasury spokesperson Nations Msowoya has dismissed suggestions that the value of the local unit is being manipulated, saying: “The kwacha is responding to the forces on the market. No one has held it.”
The kwacha’s appreciation against the dollar and other major trading currencies has raised debate among economic commentators, with some raising eyebrows, questioning factors behind the development.
Bankers Association of Malawi (BAM) president Misheck Esau, in a statement last Thursday, said those celebrating the strengthening of the local currency should do so with caution to avoid disappointment “very soon” as the fundamentals that make the local unit unstable remain untackled and unchanged.
On the other hand, Ben Kaluwa, an economics professor at the University of Malawi’s Chancellor College told The Nation he projected that the kwacha could appreciate up to K620 against the dollar soon.
He backed Minister of Finance, Economic Planning and Development Goodall Gondwe that the kwacha may have has bottomed out, or has reached an equilibrium point, and hinted that it may substantially gain value.
But Esau argued that the negative balance of payments in excess of $1.4 billion still remains, a factor that may see the kwacha lose its grip again soon.
He said: “When the currency appreciates, it is usually on account of the temporal episodes of liquidity squeeze in the banking sector. When liquidity rebounds, watch the space.
“My view is that if demand management economics [Malawi’s style of monetary policy] works in this country, then it should help us reduce inflation and interest rates which have been too high for too long for business to thrive.”
In his Mid-year Budget Review Statement, Gondwe announced that the kwacha would begin to appreciate against the dollar and attributed the gains to the harvesting period. n