The Malawi Kwacha is losing ground so fast. “Hey, this is a technical subject – can you spare us and tell us how to manage our money – period”. I hear somebody there saying. Well said, but the knowledge of the impact should raise your interest to listen. You see, when the Malawi Kwacha loses value (depreciates) as is the case now, then at least two things should worry you and me. First, high inflation could be looming and so better buy that essential commodity or service you have been saving for—otherwise it will become unaffordable for you soon. Secondly, the value of your wage will also lose value because of the inflation.
So, I should not talk about the depreciating currency? I am glad you now say ‘go ahead, tell us more.’ Well, what do you want to know? Perhaps some of the questions that come to mind are, why this fast fall? And when should we expect the Kwacha to stabilise? More-less like ‘tell us the signs of the times, when shall we know that we are about to breathe a sigh of relief — when shall we get to the land of Canaan?’
To begin with, let us understand what is causing the fast fall of the Malawi Kwacha. First, a fall is expected every year around this time because our country relies on tobacco dollars mostly and so when the tobacco season is over, it’s all about spending the dollars buying farm inputs and other necessities such as medicine and fuel without much additional in-flows of dollars. But this year, the huge fall is not really about the scarcity of dollars but the panic/thoughts of shortages, especially given the loss of budget support from our traditional donors.
But wait a minute, how much dollars do we get from tobacco and donors anyway? Well around $400 million from tobacco and around $150 million as budget support from donors. Ok, so the country really relies on around $550 million plus a few dollars from tea and few exports? What explains the close to two billion United States dollars that we use for imports each year? Aha! You get it. There are a lot more dollars out there sitting in people’s houses which will not come out now because they are waiting for the dollar to become even more expensive before they can sell—we call these guys speculators. They will now be buying the dollars —even very small amounts at very high prices, pushing the prices higher each day and so we will soon have the dollar selling at over K500 each—then they will be happy to start selling to the market.
“Hey, is this an economics class? Spare us this lecture,” I hear some of you saying. Okay fine, the bottom line though remains that your income and mine will be eroded with inflation soon— because we rely on imported products. Happy are those that get paid in dollars or indeed whose salaries are pegged to the dollar rate because they will be smiling all the way to the bank until the next tobacco selling season. Are we reaching a stable position soon? What needs to be done? Well, ask the Reserve Bank. But being the optimist that I am, I see the market correcting itself by early next year if we have the following in place: don’t fix the exchange rate or meddle with it too much; send the right signals to the donors for them to resume budget support; get more dollars from tobacco (next year) and other exports; have government live within its means (avoid huge deficits). Meanwhile, it’s a roller-coaster, tighten your seat belts! Takula tatha!
Have a blessed weekend!