Reserve Bank of Malawi (RBM) has said the current flexible free-float currency exchange rate system is the best for exporters, including tobacco farmers, because it makes them competitive on the international market.
The central bank sentiments come at a time when some sectors of the economy have complained about the recent appreciation of the kwacha currently trading at K715 to the dollar, from K765 a week ago.
In a statement on Friday titled Impact of Kwacha Exchange Rate Movement on Exporters, RBM said exporters, including tobacco farmers, enjoy exchange rate gains from the system, arguing that early planning and purchase of inputs maximises exchange rate gains for tobacco.
“The current exchange rate system is the best for exporters including tobacco farmers because it makes them competitive on the international markets. Exporters, including tobacco farmers, enjoy exchange rate gains from the system,” the RBM statement posted on its website reads in part.
The monetary authority notes that during the fixed exchange rate era up to 2010/12, there were no exchange rate gains for exporters, tobacco farmers inclusive.
The bank says since April 2012, when the kwacha was devalued by 49 percent (from K168 to K250) and Malawi adopted the current system, the exchange rate has generally been depreciating thereby providing exchange rate gains to exporters, including tobacco farmers.
“Although there have been some appreciation before the marketing season that is normally seasonal,such appreciations do not take the exchange rate to below October levels, with an exception of the 2014/15 season. It, therefore, follows that farmers have been gaining from exchange,” the bank said.
Last week, RBM came under fire, especially from tobacco growers through the Tobacco Association of Malawi (Tama), who said the timing of the kwacha appreciation is bad for the growers as the marketing season opens first week of April.
Tobacco, a crop which rakes in about 60 percent of the country’s foreign exchange, is quoted in dollars per kilogramme.
The kwacha which has been depreciating during the lean season—time when the tobacco markets are closed and the country is importing farm inputs such as fertilisers, seeds, chemicals and equipment—suddenly started to gain in value this month.
Member of Parliament (MP), for Salima Central Felix Jumbe on Thursday told Parliament meeting for Mid-year Budget Review that much as the appreciation is welcome, it could on the other hand, be doom for tobacco farmers who are expected to bring the crop to the auction floors in April.
“Why allow kwacha appreciation when tobacco is coming to the auction floors,” Jumbe, a former Farmers Union of Malawi (FUM) president wondered, saying this will discourage farmers from growing tobacco and bringing the crop to the auction floors.