The floatation of the Malawi kwacha could help to create a conducive business environment in Malawi in the medium to long-term, economist Dr. Thomas Chataghalala Munthali has said.
Munthali was asked on his stance on the likely impact of the recent 49 percent devaluation and its subsequent floatation against other currencies.
He was speaking within the context of a talk he gave to economics students at University of Malawiâ€™s Bunda College of Agriculture over the weekend.
“I mentioned to the students that a fixed currency has an advantage of making business planning easier as there is certainty with regard to what the prevailing dollar price will be at a given point in future. However, a fixed currency may lead to misalignment of the actual value of the dollar to what is prevailing on the market. In this case, floatation is a necessary strategy to get back to the true value.
“However, the floatation is likely to lead to planning challenges in the short term but helps to stabilise the economy and provide a conducive business environment in the medium to long term,” he said in an interview.
Over the years, Malawi has been struggling to provide a conducive environment for both local and foreign investors due to high costs of starting a business, persistent power outages, punitive tax measures, scarcity of foreign exchange and poor access to credit by both potential and existing investors, among others.
Munthali, a long time strong advocate of floatation, commended authorities for effecting such a decision.
He, however, said devaluation and the floatation of the kwacha have to be supported with conducive export business environment strategies for it to bear meaningful fruits in the long-term.
“The negative impacts of the devaluation and subsequent floatation may last longer than expected because the local currencyâ€™s value has been misaligned to the dollar for a long time,” added Munthali, the immediate-past president for the Economics Association of Malawi (Ecama).
Devaluation, coupled with the kwacha floatation, is one of the economic reforms the Joyce Banda administration has embarked on to win back donor and investor confidence.
Other economic reforms include the freeing of exchange bureau markets by returning to pre-August 2011 conditions where the bureaus will be determining their own mid-rate and the reversal of surrender requirement for tobacco dollars so that proceeds go straight to commercial banks.