Lilongwe - Malawi scrapped its currency peg to the dollar on
Monday, triggering a devaluation of around 50% in the kwacha as it sought to
unblock frozen aid and halt a downward spiral in the economy of one of Africa’s
The central bank’s move - welcomed by the market and one of
the most dramatic since Joyce Banda took over as president last month - is also
aimed at appeasing the International Monetary Fund, which suspended a $79m aid
programme due to a conflict with her predecessor Bingu wa Mutharika.
The IMF had called for a 50% devaluation of the kwacha,
which commercial banks were selling on Monday at 250 to the dollar - well above
the former peg at 165 and close to the black market rate of about 275.
The Reserve Bank of Malawi said it did not expect the
currency reform to stoke inflation, because most commodities were already being
traded at the unofficial exchange rate.
“At 250 per dollar the exchange rate is well adjusted,” the
Reserve Bank of Malawi said in a statement.
“It should also, together with the liberalisation of the
foreign exchange market, contribute to government’s efforts to reach early
agreement with the IMF, which should lead to unlocking donor flows in the next
Former colonial master Britain and major aid donor the
United States froze aid packages worth nearly $1bn to a country with an annual
GDP of around $5.6bn.
Dollars earned through tobacco sales, which usually account
for 60% of Malawi’s foreign currency revenue, can now go through commercial
banks instead of through the central bank.
“All forex restrictions announced last year in August on
forex bureau have been suspended since this is now a free floating foreign
exchange regime,” Charles Chuka, the central bank governor, told reporters.
He said the devaluation was met by higher sales for tobacco
The central bank also said it will allow international
tourists to settle bills in any major currency.
Hard cash crunch
“It is very welcome and the playing fields have now been
levelled,” said Roy Daniels, head of trading for Africa at Rand Merchant Bank
“But like any field, it requires watering and to keep the
importers from reverting back to buying dollars at the high rates of the
offshore market, the central bank will have to allow export dollars to flow to
the market along with supplying the market with dollars.”
Mutharika, who died last month of a heart attack, had picked
a damaging fight with donors, who suspended aid. He received international
condemnation when his forces killed 20 civilians in anti-government protests in
July, deepening Malawi’s isolation.
Petrol, drugs and other items purchased abroad with hard
cash grew scarce, with people lining up for days for a few litres of gasoline.
Goods for the domestic market were sold over the border to earn foreign
President Banda has wasted little time in trying to repair
frayed ties with the international donor community.
Neighbouring Zambia donated 5 million litres of petrol to
help her build support at home among Malawians who grew increasingly angry at
having to queue for necessities under Mutharika.
“The economy will definitely experience some negative
effects as a result of the (dollar) revaluation but overall its definitely
positive,” said Helen van der Horst, an economist at NKC in Cape Town.
“There’s no way the country could have continued in the