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Home Business Business News

Fum seeks major Kwacha fall

by Johnny Kasalika
21/01/2012
in Business News
3 min read
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tobacco farmer | The Nation OnlineThe Farmers Union of Malawi (FUM) says it is anxiously waiting for a significant weakening of the local currency, the kwacha, to major international trading currencies by March before the opening of major commodity markets.

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Speaking in the capital Lilongwe, FUM president, Felix Jumbe, said it is high time monetary policy authorities in the country drew lessons from past experience, citing last year’s kwacha overvaluation which, he said, cost tobacco growers about K5 billion ($30 million) worth of revenue.

Said Jumbe: “Proper timing of devaluation should be made. As FUM, we feel devaluation should be done at least by March before markets for most agricultural commodities open.”

Jumbe said a timely devaluation would help farmers pocket more revenue in the 2012 agricultural marketing. He said the revenue would assist the farmers to cushion the cost of high farm inputs.

He, however, did not specify the magnitude of the devaluation the union is looking forward to saying FUM is only advising on the appropriate timing of the fall of the kwacha.

Commenting on last year’s K5 billion loss in revenue from tobacco on account of a strong kwacha at the beginning of the year, Jumbe said the 236 million kilogrammes of tobacco produced last year could have earned Malawi about K50 billion (about $300 million) if the kwacha was trading at the current ruling exchange rate since March when tobacco market opened.

“However, this was not the case as we saw during the year that we earned $293 million since about 80 percent of all tobacco in 2011 was sold at K151 to a dollar, which according to our analysis, gives us a total loss of about K5 billion revenue to farmers,” he added.

In Malawi, markets for major export earners such as tobacco and tea, among others, is dollar-based and any fall in the value of a kwacha to the greenback implies that local growers would earn more per kilogramme of their produce on the market.

Tobacco Control Commission (TCC) chief executive officer said in Lilongwe soon after the Reserve Bank of Malawi (RBM) effected a 10 percent devaluation in August last year that with a devaluation in place, the amount of money to be earned by tobacco growers will be relatively higher as the ruling exchange rate at the time of sales would be comparatively higher.

Tobacco remains Malawi’s major foreign exchange earner, raking in over 60 percent in foreign currency, and any significant change in the value of a Kwacha to a dollar points to an increase in the revenue to growers.

Currently, the International Monetary Fund (IMF) is pressing for a fall in the value of a kwacha to a dollar which is one of the major contentious issues to the stalled IMF’s Extended Credit Facility (ECF).

IMF perceives Malawi’s official exchange rate of about K166 to a dollar as overvalued saying the parallel market is at about K250 to a dollar.

According to the fund’s Technical Assistance Mission, which was in the country in December, the overvalued exchange rate is causing a persistent imbalance in the foreign exchange market and also deterring private sector growth and diversification efforts.

By letting the kwacha loose, IMF envisages a significant unlocking of millions of dollars currently frozen by Malawi’s major donors under the Common Approach to Budget Support (Cabs) and in the process restoring the suspended ECF.

Finance Minister Dr Ken Lipenga last week indicated that government is still engaged with the IMF over issues raised by the fund’s technical team report.

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