Despair, smiles as kwacha falls

Post was last updated: June 20, 2019

By Taonga Sabola:

Felix Thole

Portfolio management and advisory firm, Nico Asset Managers, has said the fall in the value of the kwacha could bring both negative and positive effects to the local economy.

In its May 2019 Economic Report released on Tuesday, Nico Asset Managers says, while the depreciation may hurt importers in the medium to long term through higher import costs, it may also lead to relatively cheap domestic exports on the international market, thereby propelling exports.

At the Limbe Auction Floors Wednesday, tobacco growers were spotted grinning at the exchange rates board of commercial banks as the kwacha continued to tumble.

Tobacco Association of Malawi (Tama) Chief Executive Officer, Felix Thole, said in an interview that much as growers could earn more kwachas from the depreciation, the value loss of the currency weakens the purchasing power and could hurt them when it comes to buying inputs.

Thole said exchange rate stability is what tobacco growers pray for at all times.

The kwacha has in recent weeks lost valuable ground against the dollar due to demand and supply disproportions in the country.

The decrease in the realised income from the sales of tobacco, Malawi’s foreign exchange top earner, is also believed to have contributed to the depreciation of the kwacha.

As at mid-day Wednesday, foreign exchange bureaux were trading the dollar at an average price of K8.10 from K7.50 at the start of the year.

Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer, Chancellor Kaferapanjira, was not immediately available for comment on the impact of the depreciation on industry players.

Malawi’s total forex reserves have decreased to $1,076.01 million or 5.15 months of import cover in April 2019 from $1,080.50 million or 5.17 months of import cover in March.

The firm says, in the medium to long term, the kwacha may depreciate due to trade imbalances and current account deficits.

The Economic Intelligence Unit (EIU) expects the pace of annual currency depreciation to increase to over nine percent this year.

The EIU has further predicted that, between 2021 and 2022, a weaker US dollar and higher exports aided by a strengthening in the prices of some of Malawi’s agricultural exports should provide further modest support to the kwacha.

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