The World Bank has prescribed a major reset of Malawi’s foreign exchange regime, proposing fiscal and monetary tightening before authorities unify exchange rates and move towards a market-determined system.
In its biannual publication Malawi Economic Monitor (MEM) published last week, the World Bank has recommended laying the groundwork for exchange rate unification by tightening fiscal and monetary policies and stabilising the parallel market rate.
The Bretton Woods institution also proposed strengthening the foreign exchange market operations before eventually unifying exchange rates, phasing out forex surrender requirements and transitioning towards a market-determined exchange rate.
The World Bank further argued that the current system is undermining the country’s ability to generate foreign currency, saying: “The exchange-rate continues to be overvalued, weakening export-oriented sectors, contributing to foreign exchange shortages and exacerbating external imbalances.”
The prescription comes at a time the Reserve Bank of Malawi (RBM) has further tightened controls on foreign exchange due to scarcity of the hard cash on the market.
In three notices published in the Malawi Government Gazette supplement on September 18, RBM restricted individuals from physically possessing more than $1 000 in foreign currency without its permission.
The central bank said anyone taking or sending more than $1 000 (about K1.7 million) outside Malawi must show that the forex was obtained from an authorised dealer or secure RBM permission.
RBM has also restricted the amount of Malawi kwacha that can be taken or sent abroad without permission to the equivalent of $5 000 (about K8.7 million) for cross-border traders and $100 (about K175 000) for other travellers.
The measures come amid continued pressure on forex reserves with the RBM Monthly Economic Review for July showing that total forex reserves declined from $616.1 million (about K1 trillion), equivalent of 2.5 months of import cover in June to $600.6 million (about K1 trillion), or 2.4 months in July.
The July position was also below the $607.7 million (about K1.06 trillion), equivalent to 2.4 months of imports, recorded in July 2025.
RBM attributed the month-on-month decline to lower estimated private sector reserves, although gross official reserves improved slightly.
But speaking during the launch of the MEM last Thursday, Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha cautioned against viewing changes to the exchange rate mechanism as sufficient to resolve the shortage.
He said Malawi has previously experimented with different forex management arrangements without resolving the underlying imbalance.
Said Mwanamvekha: “It doesn’t matter what we do, but as long as the demand and supply do not match, we can do whatever we want.
“The issue is supply and how we sequence, how we do the timing and what kind of cocktail of policies that we put in place so that we don’t repeat the same mistakes.”
The minister’s emphasis on sequencing partly mirrors the World Bank’s prescription, which does not propose exchange rate unification in isolation but places fiscal and monetary tightening ahead of the adjustment.
During a panel discussion at the launch, National Smallholder Farmers Association of Malawi chief executive officer Betty Chinyamunyamu said forex shortages are affecting productive businesses through difficulties in importing machinery, spare parts and other inputs.
“As a business, you need confidence. You need predictability. You need to know what things are going for in the near future,” she said.
Economics Association of Malawi (Ecama) executive director Esmie Kanyumbu stressed on reforms that expand production, value addition and exports.
Ecama president Bertha Bangara-Chikadza, in an earlier interview, similarly argued that sustainably resolving the forex problem requires increasing the country’s capacity to earn foreign currency.
“The most sustainable means to build reserves in the country remains increasing the export base through increased production of goods and services with world demand,” she said.
In its policy note, National Planning Commission and International Food Policy Research Institute urged the Malawi Government to move decisively to unify the exchange rate because the current dual system is “untenable” and no longer restrains inflation.
