Mkwezalamba blames kwacha fall on speculation
Malawi Finance Minister Maxwell Mkwezalamba has blamed the steep depreciation of the local currency, the kwacha, in recent weeks to speculation on the market and not because of the shortage of foreign exchange on the market.
The minister has said the country is sitting on enough foreign reserves estimated at $400 million which he said is an equivalent of slightly over two months of import cover.
“Yes, the kwacha to dollar exchange rate has been depreciating but this is not simply as a result of excess demand for dollar, I think what is very much at play in this case is basically speculation,” the minister said in Lilongwe on Sunday upon his arrival from Brussels, Belgium and Germany.
He was speaking when responding to Business News query for him to explain the recent tumbling of the kwacha to the dollar amid the lean season coupled with the continued aid freeze by Malawi’s major international development partners.
On Friday, some foreign exchange bureaus were selling a dollar at K455 from a rate of K331 recorded in June this year, according to spot check by Business News in Lilongwe.
Donors, who are also an important source of foreign exchange after tobacco, are currently withholding budget support worth $150 million (over K160) billion following the revelations of massive plunder of public funds at Capital Hill in September this year.
In the 2013/14 National Budget, donors are financing the 41 percent of the 2013/14 National Budget.
Added Mkwezalamba: “We have seen a case where by players in the market expect that there will be a shortage simply because of delayed disbursement of donor funds and I think this is not the way we should look at it because the Reserve Bank of Malawi (RBM) is sitting on about $400 million in foreign exchange which is slightly over two months of import cover.”
The Finance Minister further assured Malawians and the business community that although there have been delayed disbursements, the country should be okay in terms of foreign exchange position.
“Two months cover is not bad and like I said, we have just come back from Berlin and Brussels where by some further commitments have been made, the resources I talked about will be made available by the end of the year and that should help cushion our foreign exchange reserve position,” added Mkwezalamba.
He lamented that issues of speculations on the foreign exchange market ought not to be there and called for Malawians to help assure the market that government is doing its best to prevent a situation of foreign exchange scarcity.
Last week, the African Development Bank (AfDB) and a Lilongwe-based banking expert separately said inflows from Malawi’s development partners in the current lean season, would be key to determine the overall movement of the kwacha until next year when tobacco marketing re-opens.
The experts also projected that a steeper depreciation of the local unit is expected, reflecting seasonal high demand for foreign exchange for imports.
Kodi bwanji munthu akafika kusogoloku amasintha zochitika? Alamba awa mwaona zomwe ayamba kukhala ngati anthuwa amalowa kachipembezo kena kake koti olo chisoni asamakhale nacho. Tikukuuonanitu
Interesting observations! Do not be too harsh on yourselves. The bounce in exchange rate of the week beginning 11 Nov was a “dead cat bounce” from what I can see. The current exchange rate level is consistent with weak macroeconomic fundamentals. I can assure you that import cover by itself has no impact whatsoever on the kwacha exchange rate. The real drivers of the exchange rate are a) Malawi worsening current account deficit, not just the demand for the dollar but the diminished demand for the kwacha (no aid flows and few exports). b) the country growing external debt must be brought in check . It is creeping towards $2bn fast c) Right now the Malawi economy has adverse “terms of trade” in selling commodities. Aim to diversify from Agriculture and mineral commodities to manufactured goods. d) Malawi interest rates and inflation rates vs trading partners put it at a severe disadvantage. These are trying times but also an opportune time for Malawi to revamp, recharge and leap forward in confidence.
As for the currency speculation, the general public is innocent. Let us see, who could be responsible? I will also eliminate the brokers they are risk averse. That leaves two groups; end-customers (companies and mutual funds hedging their import/exports) going head to head with market makers /dealers. Who of these two groups handles the most transactions? Market makers /dealers handle over half of the total forex transactions. Therefore, the likely source of speculation is….dealers….. Check with this group lol ! Good luck.