Elections demand weaken Kwacha

The Malawi kwacha has continued to weaken against major trading currencies such as the dollar and pound sterling largely due to businesses’ scramble to honour their payments ahead of the May 21 Tripartite Elections, the Reserve Bank of Malawi (RBM) ha said.

The local unit, which has remained largely stable against the greenback has fallen to around K751 from K740, where it had been for a number of months, while the pound has also slid by 3.2 percent to K961.20 from K931.14 in five months.

Tea is one of the country’s main export crop that could be affected by the kwacha fall

RBM spokesperson Mbane Ngwira, in an interview on Tuesday, confirmed the easing of the local currency against major trading currency, adding that before the election, most traders frontloaded their payments which pushed the exchange rate.

“Going forward, demand will be lower and with tobacco sales in progress, everything will be back to stability,” he said.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira, commenting specifically on the kwacha fall against the pound, said this is an indication of Malawi’s dismal performance in terms of exports to the United Kingdom (UK)as well as dwindling pound reserves in the country

Reacting to Business Review trend analysis of how the local unit has performed against the pound since December 2018, said on Tuesday that much as the pound “is being pounded” also as a result of on-going uncertainty over Brexit talks, the ceding of the kwacha against one of the world’s stable foreign currencies could be linked to Malawi’s little showing in trade with the UK.

Amid Brexit talks, the UK is still part of the EU single market through Everything But Arms (EBA) initiative, where exports from Malawi and other 48 least developed countries (LDCs) enter duty-free and quota-free, with the exception of arms.

EBA entered into force on March 5 2001.

Business Review calculations show that the kwacha has eased by about 3.2 percent against the pound between December 2018 and May 2019, having fallen from a midrate of K931.14 to K961.20 between the two time periods, based on Reserve Bank of Malawi (RBM) official statistics.

RBM figures show that a buying rate of a unit of a pound was K922.37 in December 2018 against a selling rate of K939.92. Five months later, the same unit was being bought at K952.92 and was sold at 970.20.

RBM’s Financial and Economic Review for the first quarter of 2019 shows that the kwacha fell by 3.9 percent to K963.42 against the pound during the period.

Kaferapanjira said it is not surprising that the kwacha has weakened against the pound, saying the country is doing badly in terms of exports to the UK.

“We continue to sell tea, tobacco and some sugar to the UK but such trade in terms of value has gone down and not the volume.

“It just shows that trade has worsened in favour of Malawi and that the pound sterling reserves we had are diminishing without being replenished,” he said.

Experts argue that a depreciating currency makes exports more competitive as the exports appear cheaper on the global market, thereby increasing demand for exports.  On one hand, currency depreciation makes imports, such as petrol, food and raw materials, more expensive to importers.

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