NPC urges government to float the kwacha

National Planning Commission director general Thomas Munthali has urged the Malawi government to float the kwacha against major international currencies and catalyse investment in strategic sectors to stabilise the economy in the long-term.

The remarks follow the recent devaluation of the kwacha that has led the local unit to depreciate by 44 percent in a move the government and its development partners said was a painful but necessary step to stabilise an economy that was in danger of going completely off the rails.

In a director’s note shared via WhatsApp, Munthali urged the government to follow up the devaluation, which has seen the kwacha to trade at K1 700 against the dollar to ensure that the government stays ahead of the black market.

Said Munthali: “Otherwise, in an environment of acute forex shortage, the monetary authorities will keep on devaluing the currency and in the process be chasing the parallel rate. This will mean Malawians will keep on facing a spate of price increase shocks every time there is a devaluation.”

He further observed that monetary authorities are seemingly already making efforts in that direction, referring to a circular the Reserve Bank of Malawi issued on November 8 that notified authorised dealer banks (ADBs) they can “freely negotiate exchange rates to trade with their clients and amongst themselves”.

The changes in forex management were part of the conditionalities the Malawi government, through the Ministry of Finance and Economic Affairs and RBM, agreed with the International Monetary Fund as part of the external sector reforms to “strengthen the functioning of a market-determined exchange rate”.

The NPC head, who is in charge of implementing the country’s premiere development plan the Malawi 2063 and its First 10 year implementation plan (MIP-1), further said the government should take an active role in catalysing investment in strategic sectors of the economy.

In an earlier interview, economic analyst Winford Masanjala, a former director of Finance in the Ministry of Finance, said the central bank’s decision would promote economic stability in the long-term, but stressed that the government will have to practice fiscal discipline to deal successfully with the problems of the balance of payments.

On catalysing investment in the private sector, director of agricultural planning services in the Ministry of Agriculture Rodwell Mzonde said in an earlier interview that the government should brace to “trailblaze” and invest in production areas investors deem high-risk to “unlock” the investment.