Road to recovery bumpy says RBM

Malawi’s central bank Governor Charles Chuka has warned Malawians to expect a ‘bumpy road’ to recovery, arguing that fruits of monetary policy decisions effected this year will be seen in 2013.

Reserve Bank of Malawi (RBM), the custodian of monetary policy, effected a number of decisions such as the removal of foreign exchange controls, inflation targeting, devaluing the kwacha by nearly 50 percent and subsequently floated and hiking the bank rate, now at 21 percent, twice since May.

The monetary policy decisions have seen the kwacha further losing value by another 20 percent, banking liquidity problems resulting in the RBM introducing a noncollateralised discount window rate for ‘stressed’ banks now stopped and increased inflation currently at 25.5 percent as of August, further pushing the cost of living and eroding Malawians’ purchasing power.

“These policies take time to bear fruits,” Chuka told the Association of Business Journalists (ABJ) on Monday evening in Blantyre, adding that visible positive impact of the policies will be seen when the next agricultural selling season, particularly that of tobacco, which wires in 60 percent of foreign currency earnings, begins in March or April 2013.

Government is also this year, through the 2012/13 budget, implementing an austerity budget that aims at reining in on expenditure at a time Malawians are outraged with frequent internal and external travels of the presidency at a time the fiscal infrastructure is not in good shape.

Said Chuka: “High interest rates, high inflation rates, fiscal expenditure cuts have at all times in all the countries spelled doom for livelihoods, especially among the low income earners. But government has the moral duty to do something about those hard times.”

He said as a show of concern to the hard times Malawians are going through, government has engaged in a recovery programme as espoused in the 2012/13 budget and also the Malawi Economic Recovery Plan (Merp) launched last Friday in Lilongwe.

Vice-President Khumbo Kachali said at the launch that apart from the 30 percent salary cuts for him and President Joyce Banda, government is actively considering other austerity measures to be announced in due course.

But Chuka, who was accompanied by a handful of officials from the central bank, said hard times make people to think differently about their economy, lives, country and companies.

He acknowledged that the policies have, in a way, reduced the purchasing power of people; hence, becoming difficult to maintain families.

“But high interest rates demand higher production in companies, much more than before. High interest rates are about choices, the choice that forces companies to improve their cash flows,” he said.

Chuka observed that much as high inflation creates problems, it also creates opportunities for others to increase their prices having produced something and earn more.

Giving a forecast, the governor said since Malawi has done away with almost all commodities that brings in foreign exchange, there is not much to expect in terms of forex generation.

He added: “But there could be some minor manufacturing taking place, but at the end of the day, the lean season is not very new to Malawi. It has always been there, all companies in this country are aware that this time of the year there is shortage of forex.”

Chuka said most of the people plan for the lean season and have already paid for their imports earlier.

Erratic fuel supplies have over the past months been observed in all the country’s cities, but Chuka assured the RBM will do all it can to improve the situation albeit there could be some logistical challenges.