Kwacha appreciation, forex boost cosmetic

The Economic Empowerment Action Group (Eeag) has said the recent appreciation of the kwacha and the rise in foreign exchange reserve are cosmetic and will hurt tobacco farmers.

Eaag interim president, Lewis Chiwalo, said in an interview that the recent appreciation of the kwacha should not be cause for celebration, but rather should make Malawians, especially tobacco farmers, concerned.

The kwacha has been appreciating since December 2013. During the week ending February 21, according to Nico Asset managers, the local unit appreciated against all major currencies in the week gaining against the rand by 1.49 percent, and by 1.17 percent against the pound sterling. The kwacha packed 0.85 percent against the euro and gained 1.12 percent against the dollar.

Official gross reserves rose by about 12 percent to 2.39 months ($449 million) on February 10 from 2.08 months ($392 million) on January 10 improving the economy’s buffer against shocks and strengthening the Reserve Bank of Malawi’s (RBM) ability to back the local unit and support critical goods and services.

Eaag argued that the appreciation of the kwacha is as a result of tight monetary policy being implemented by RBM and some market players seeking to cash on the forthcoming tobacco marketing season.

“The appreciation of the kwacha has not been due to an improvement in the performance in the real sector. This is due to the mopping up of excess liquidity from the market. The economy is so tight that there is no demand for forex and this has prompted the appreciation of the kwacha and the improvement in forex reserves,” said Chiwalo.

He added that the appreciation of the kwacha is a sad development arguing that relatively tobacco farmers will take home few kwachas per dollar earned.

He argued that these are the farmers that bought inputs including fertilisers at a high cost when the kwacha was depreciating.

But the Monetary Policy Committee (MPC) during its meeting held on February 13 welcomed the appreciation of the kwacha, noting that the developments in the local unit will dampen inflationary pressures especially if fiscal discipline is sustained over the next few months.

While maintaining the bank rate at 25 percent for over a year running since December 2012, the MPC attributed the high December forex reserves since to consistent monetary policies since the May 2012 economic reforms.