The local currency, the kwacha, has since December last year weakened by an average of four percent against major trading currencies as observed from daily market rates offered by commercial banks.
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This means that between December and mid April this year, local exporters of both goods and services relatively earned higher revenue from their consignments based on the ruling exchange rate.
But during the same period, importers felt a pinch as they have to cough more money to import extra units of goods and services.
Statistics provided by Alliance Capital Limited, a registered portfolio and investment manager indicates that the local currency lost value to the world’s reserve currency, United States dollar and the euro, by 1.8 percent and 2.3 percent, respectively.
According to the firm’s weekly review, between December 2011 and April 13 this year, the local unit also shed off four percent, against both the British pound and the South African rand and remained steady against the Japanese yen.
Reserve Bank of Malawi (RBM) said recently that movements in the daily exchange rates also called high frequency data is normal, but said cannot go beyond K1.
The depreciation of the kwacha is coming at a time when the International Monetary Fund (IMF) is pressing Malawi to devalue the kwacha in tandem with realities on the market.
“Over the years, persistent overvaluation of the kwacha has contributed to growth in imports outpacing growth in exports while official international reserves have remained at very low levels, thus rendering the economy highly vulnerable to external shocks,†said IMF mission chief for Malawi Tsidi Tsikata in a statement earlier this month.
Economic analysts have also argued that the current official exchange rate is failing to anchor inflation expectations as a growing share of imports is being priced at the significantly depreciated parallel market exchange rate.
Alliance Capital has since indicated that official foreign reserves for Malawi, as at April 5, declined from $138 million to $136 million, which represents 1.05 of import cover.
A three-month of import cover is internationally recommended for an economy to adequately cover for its critical imports such as drugs and equipment, among others.
