Malawi’s foreign exchange rate needs to be aligned with market conditions and adopt a management float or rule-based crawl to prevent renewed foreign exchange shortages, Harvard University researchers have advised.
In a study by the Harvard Kennedy School Growth Lab, the researchers also called for tighter control of money supply growth and institute measures to boost foreign currency earnings as part of efforts to ease the country’s persistent foreign exchange constraints.
According to the research titled ‘Resolving Malawi’s binding foreign exchange constraints’, restricting foreign exchange at the official rate pushes demand into informal channels, widens the parallel-market premium and erodes confidence.
Reads the research in part: “Multi-faceted macroeconomic reforms are needed. However, we find that relaxing extreme foreign exchange shortages by achieving a market-clearing rate could be achieved relatively quickly.
“The gains of this reform would be large and the risks would be limited if the exchange rate realignment is matched with consistent monetary and fiscal policy.”
Data from the research show that Malawi’s foreign exchange available per person has fallen from $200 (about K350 000) in 2013 to below $150 (about K262 000) since 2020, despite the country generating roughly $1 billion (about K1.7 trillion) annually through official foreign exchange channels.
The research notes that forex pressure has coincided with a sharp expansion in domestic liquidity, with the monetary base quadrupling since 2020 and kwacha in circulation tripling, increasing demand for foreign currency against limited dollar supply.
The result has been a widening gap between the official and parallel markets, with the premium rising from 12 percent in August 2021 to almost 180 percent in August 2025, according to the study.
In recent years, persistent foreign exchange woes have reached crisis levels with reserves stuck below the recommended three-month cover, forcing the Reserve Bank of Malawi (RBM) to tighten controls on the possession and movement of foreign currency.
In three notices published on September 18 2026 in the Malawi Government Gazette supplement, RBM Governor George Partridge announced that the new measures restrict the amount of foreign currency individuals can physically possess or take out of the country without permission while also limiting the amount of local currency travellers and cross-border traders can take or send abroad.
Under the Foreign Exchange (Limit on Physical Possession of Foreign Currency) Notice of 2026, no individual may physically possess foreign currency exceeding $1 000 (about K1.7 million) or its equivalent in another currency without permission from the central bank.
In the second notice, anyone taking or sending more than $1 000 in foreign currency outside Malawi must provide evidence that the money was sourced from an authorised dealer or obtain permission from RBM while the third notice limits the amount of Malawi kwacha to be taken or sent outside the country without RBM permission to the equivalent of $5 000 (about K8.7 million) for cross-border traders and $100 (about K175 000) for other travellers.
Malawi Confederation of Chambers of Commerce and Industry earlier proposed a phased exchange rate unification programme to attain a market-determined rate to restore forex availability, boost exports and attract investment.
In a position paper on exchange rate reform, the private sector lobby group said the gap between official and parallel market rates has widened in the past five years, with the official rate moving from K806 per dollar in 2021 to K1 751 against the dollar in 2025.
During the same period, the parallel market rate jumped from K900 to the dollar to between K3 500 and K4 500 against the greenback.
However, economist Milward Tobias likened the restrictions to rationing resources in a household facing scarcity, saying Malawi should use the period to tackle the underlying causes of the forex shortage.
RBM’s July 2026 Monthly Economic Review shows that total reserves declined from $616.1 million (about K1.07 trillion), equivalent to 2.5 months of imports in June to $600.6 million (about K1 trillion0, 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.
