People in the diaspora prefer to use informal channels to send money to their relations back home as the gap between the local unit and the dollar continues to widen on the formal and parallel markets, Business Review has learnt.
While the official exchange rate for the dollar remains at K1 751 against the dollar, on the black market, the kwacha is trading at as high as K3 000.
Published data from the World Bank show that in Malawi, remittances or money sent by migrant workers or people in the diaspora to their home country, have fallen from 2.6 percent of the gross domestic product (GDP) in 2021 to 1.4 percent of GDP in 2023.
Blantyre- based Steria Chirambo, who has been receiving financial assistance from her uncle in the United Kingdom for the past six years through authorised dealer banks, now gets the same through mobile money sent through a local agent.
“The amount hasn’t really changed, it is only the mode of receiving the money that has changed,” she said.
In an interview yesterday, economist Bond Mtembezeka, who is also Business Partners International country manager, observed that remitters are using informal channels because they are being attracted by a good exchange rate on the parallel market.
He said: “In fact, personal remittances have gone up during this period. For instance, the official exchange rate is K1 751 and the parallel market is buying the same at K3 000.
“So, you can see that any rational economic agent will always trade on the parallel market.”
Asia-based Malawian economic statistician Alick Nyasulu observed that while there was a general global economic downturn during Covid with job losses, it is probable that there is a small decline.
“We also must deal with the reality of increased use of informal remittances that the World Bank data may not capture,” he said.
World Bank data showsthat in 2023, remittance flows to sub-Saharan Africa reached $54 billion, a slight decrease of -0.3 percent from the previous year, with projections indicating a 1.3 percent rise this year.
The Bretton Woods institution, in its recent migration and development brief, concedes that fixed exchange rates and capital controls continue to have an impact on foreign exchange markets and channels of remittance flows.
For instance, senders in the region had to pay an average of 7.9 percent to send $200 to African countries during the last quarter of 2024, up from 7.4 percent required in the last quarter of 2023.
According to the bank, costs vary substantially across the region, ranging from 2.1 to four percent in the lowest-cost corridors to 18 to 36 percent in the highest.
However, International Monetary Fund (IMF) data show that the cost of sending $200 (about K350 000) to Malawi in 2021, was $18 (about K32 000) or 8.9 percent of the value of the transaction.
This is about 3.9 percentage points higher than the three to five percent threshold set by the G20, World Bank and the IMF.
Scotland-based Malawian economist Velli Nyirongo observed that the growing disparity between official and parallel market exchange rates, which exceeds 50 percent, rising cost of living in host countries, high transaction costs and foreign exchange controls discourage the use of formal remittance systems.
He said: “To address this trend, policymakers must prioritise streamlining remittance processes and reducing associated costs to encourage the use of formal channels.
“Addressing exchange rate disparities would reduce incentives for informal transfers, while active engagement with the diaspora could help identify and address barriers to formal remittances.”
Earlier, IMF and the World Bank offered to provide technical assistance to countries such as Malawi to help reduce the cost of remittances and cross-border payments.
Reserve Bank of Malawi spokesperson Mark Lungu is on record as having said the reduction in cost of sending money will allow affordability to those who could not send money before due to higher cost and that has the potential of increasing volumes of remittances into the country which will improve the foreign exchange situation.
Data from the RBM show that Malawi’s net remittances have been on a downward spiral from $21 million in 2019 to about $6 million in 2022.
