Business NewsEditors Pick

Chuka’s speaks on depreciating kwacha

In recent weeks, the local currency, the kwacha, has continued to show signs of ceding to major international currencies, notably the United States dollar. The depreciation of the kwacha or weakening in the value of the local currency is happening soon after the country has just closed its marketing season for tobacco, touted as the main driver of the strength of the kwacha as the crop dominates the foreign exchange revenue buffer for Malawi. But in an interview with our Business News Analyst Dumbani Mzale in Washington DC, USA on the sidelines of the 2014 International Monetary Fund (IMF), World Bank annual meetings, Reserve Bank of Malawi (RBM) Governor CHARLES CHUKA plays down worries that the currency is losing ground to the dollar and says there is no need for panic: Excerpts:

Governor, I have noticed the sudden twist in the strength of kwacha in recent times, having stabilised for a while at around K390 to the dollar. And this is sending shivers to many, fearing that prices of basic goods and services would also continue rising propelled by a weak currency. With tobacco market now closed, where should Malawians derive hope?

Chuka: It should not be news that kwacha is depreciating
Chuka: It should not be news that kwacha is depreciating
[Laughs]. Let me ask you this question, Dumbani. Why is it that tobacco is so important? Okay, $400 million [from tobacco annually]. But the country is going to pay out $1.4 billion this year, so where does the $1 billion come from? So, get these facts correct. I say Malawi is paying out $1.4 billion this year and tobacco gives us only $400 million, tea and sugar give us another $80 million and we will just add small things [export commodities].So, where does this other money come from? Let me tell you what I am trying to explain, what I mean is that no one is borrowing money in Malawi because it’s too expensive to borrow. But at the same time, the demand for dollars is increasing. So, where is it coming from? And who is consuming? You? No, you are poor like me because you don’t have money to consume that money and it’s not the rich who are consuming such money because they are only less than five percent in this country.

 

So, tell me Governor, in simple terms, what are you saying on the dramatic weakening in the value of the kwacha against other major foreign reference currencies?

There is no news that the kwacha is depreciating because we were expecting it anyway. [It is] because the country still has not managed to diversify its sources of exports. And stories about donor flows remain negative at this point and there is no good news as yet. So, people are scared that because we have no enough flows coming in, the country is growing.

 

You have just said the country is growing, don’t you think that’s a cause for concern as Malawians will be scrambling for few dollars on the market?

Yes, the country is growing and, as the country is growing, it is demanding more. So, despite the fact that donors went away, the country is not stuck. It is growing and it is requiring more and more imports. The imports are necessary to grow in fact. Hopefully, at the new exchange rate, we have more raw materials and intermediate goods, basically inputs in industry. We hope data will show that in fact our imports have shifted in the sense that we are importing more of industrial inputs. So, as the economy grows, demand [for dollars] also grows.

 

Where is the problem really Governor for the country to fail to match its economic growth to the demand for dollars by its people or inhabitants?

The problem is that we have not yet reached a point where we are producing more exports. We need a bit of time to start producing more exports. So, interest rates remain so high and until we have stabilised the economy and interest rates come down, diversification of exports will still be a problem. So, we have more demand for forex than we have supply.

 

As a central bank, what are you doing to manage such a tricky situation and keep the economy ticking?

Thank you for that question. It is only the exchange rate that is helping us to balance the two [demand and supply] so that we continue to pay our way and help the bank hold enough reserves because the exchange rate is free and people that are exporting are bringing in their money without having to be forced, because they need it anyway to run their businesses.

So, the exchange rate is necessary to balance the gap between supply and demand.

 

What are your last comments on this issue?

It should not be news to any Malawian that the kwacha is depreciating. Who is talking about it anyway? Ask the exporters what they feel now that the kwacha is depreciating and those are the people we should worry about most. Exporters should get the right price for their dollars so that they can invest more in exports. If we continue to worry about consumers like you and me and worrying about traders who are trying to import all kinds of goods into the economy for nothing, then we are missing a point. We should be concerned about how the exporter feels whether now he has conditions to invest more, export more because now they can cut their cost and make profits. That should be the story.

Related Articles

One Comment

  1. S0 sincewe have a shortage of 40% of forex from donors which is not forthcoming, then lets expect our Malawi Kwacha to depreciate by 40%, that takes it to 560 to the dollar, unless some consumers of exports forgo them.

Back to top button