Malawi devalues kwacha by 33%, leading to panic-buying

 
Joyce Banda (file photo) New President Joyce Banda has reversed several of her predecessor's policies

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Shoppers in Malawi have been scrambling to buy basic goods, fearing huge price rises after the currency was devalued by 33%.

The BBC's Raphael Tenthani in Blantyre says that many shops had run out of staple foods such as sugar, cooking oil and bread by the end of Monday.

The kwacha was devalued as part of moves by the new government to restore donor funding.

The former government had rejected IMF calls to devalue the currency.

Our reporter says that other goods such as rice, maize flour and orange squash were running short in Blantyre's Chichiri shopping centre - the main retail area in Malawi's biggest city.

He has been told that the same panic-buying is also happening in Malawi's main towns.

The scramble comes despite economists saying they did not expect the devaluation to immediately lead to higher prices, as many businesses were expecting the move and were already using the new exchange rate.

The central bank announced that one dollar would now be worth 250 kwacha, up from 168, while the peg to the US currency would be scrapped.

"The devaluation of the kwacha and the liberalisation of the foreign exchange market are expected to continue the government's efforts to reach agreement with the IMF," said Reserve Bank of Malawi Governor Charles Chuka, adding that this would hopefully lead to more donor funding in the next few months.

The International Monetary Fund has long urged Malawi to cut the value of its currency, saying this would boost exports and reduce demand for imports.

However, former President Bingu wa Mutharika, who died in April, had rejected the calls, fearing it would increase inflation.

New President Joyce Banda is trying to improve relations with donors and get aid restored.

About-turns

In recent years, Malawi has run short of foreign currency after donors cut aid and demand fell for its main export, tobacco.

This led to a lack of fuel in the country.

In the four weeks she has been in power, President Banda has reversed several government policies.

Last week, she said she did not want Sudan's President Omar al-Bashir, accused of war crimes, to attend a summit in July.

She says she feared the "economic implications" if Mr Bashir attended the African Union meeting in the country.

She has also fired Mutharika's widow, Callista, from her job as coordinator for safe motherhood, the AFP news agency reports.

 

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  • rate this
    +1

    Comment number 20.

    The pressure from IMF and the International community to devalue the local currency is because the International community wants to buy the raw material almost for nothing. Nigeria made the same mistake twenty years ago and the Nigerian economy collapsed and has never recovered since then. The IMF and the International community will never fulfill their promises. This is a fact of history.

  • rate this
    +2

    Comment number 19.

    17.willre13

    Take responsibility for what exactly, being invaded and oppressed? Let's face it when colonialism ended, those in South Africa were in exactly the same position as when it began. They were deliberately kept uneducated, stunted and exploited for generations as the rest of the world moved on, matured, developed. The playing field has never been level for those in South Africa!

  • rate this
    0

    Comment number 18.

    Once again we have elected officials letting the working people suffer. Whether it's Africa or the western world it's time we made our politicians accountable !

  • rate this
    0

    Comment number 17.

    @4
    There must come a time when Africa accepts responsibility for it's situation. Blame cannot be leveled at colonialism, the 'west' or the World Bank ad infinitum
    'Freedom fighters' ruined strong economies in Libya, Uganda, Zimbabwe and Malawi plundering diamonds, gold and other natural resources to line their pockets. This while literacy and life expectancy decline. Funny take on freedom.

  • rate this
    0

    Comment number 16.

    From £1=2 MWK in the eighties to £1= 400 MWK today.

    All because Malawi does not produce enough exports and has a steeply growing demand for imports.

    How I wish aid-giving nations targeted this better. For example, aid (if any) should be focused on exports and Malawi's uncontrolled population. The later is the single most damaging factor that successive govts have avoided tackling head on!

  • rate this
    +1

    Comment number 15.

    We live in a world of banking greed, government ineptitude, the only news is the people will suffer , children, the aged, and the worker, no excuses the IMF and the self interested politicians. crime will soar and prostitution child abuse and dare I say military and police brutatlity.

  • rate this
    0

    Comment number 14.

    This Is a regressive policy. When will African nations learn from the past? When will the IMF and World Bank stop pushing African nations Into greater economic difficulties? The new president Is just naive. She should focus on developing the country's human resources which Is what the country needs the most.

  • rate this
    0

    Comment number 13.

    . . . you only need to devalue if your currency has an artificially inflated value . . .

    . . . better to float and allow the currency to find its own value

  • rate this
    0

    Comment number 12.

    @ Karl Von Battern.

    When you devalue you achive two positive things, one reduce the burden of debt.

    Two makes exports cheaper resulting in more exports resulting in more sales resulting in more investment etc into the country.

    No point sitting on resource wealth if you cant convert that by sales into cash wealth.

  • rate this
    +1

    Comment number 11.

    If we didn't spend £46million a day on EU membership we could do more to help our struggling brothers in Malawi & elsewhere.

  • rate this
    0

    Comment number 10.

    @iankemmish

    Thanks for pointing that out - we have amended our story.

  • rate this
    +1

    Comment number 9.

    What a bad idea by IMF to keep Malawi poor with this evil tried and tested failed economics.
    This trick must be kicked out of Africa. Malawi must borrow from within Africa and her citizens Abroda.

    IMF is evil and set up to make Africa poor!

  • rate this
    +1

    Comment number 8.

    I wonder if this devaluation is addressing the the fundamental factors to drive our economic growth or the means of transferring wealth. Unfortunately the apparatus to create economic growth is almost none. So devaluation is just a palliative solution and will just cause lives of many poor more miserable

  • rate this
    -1

    Comment number 7.

    Malawi's currency cut by 1/3 as it seeks to please IMF. CB Chief said currency adjustment is expected to reduce demand for imports in favor of domestically produced goods. Late President Bingu wa Mutharika rejected IMF's pressure. But US aid agency that rewards good governance suspended $350M worth of assistance to Malawi. Stupid devaluation may have had more to do with US/IMF than Malawi.

  • rate this
    -1

    Comment number 6.

    Having spent several weeks in Malawi late last year, I do wonder about Karl von Batten's grasp of economics and/or knowledge of Africa. Which are these unstable countries: Kenya? South Africa? Zambia? All have floating rates. Malawi was operating under an effective dual exchange rate system at the end of 2011, with even government officials (allegedly) exchanging money on the black market.

  • rate this
    +2

    Comment number 5.

    End the Commodity Super Cycle Now

    No More Money Printing by the West as the QE is the real problem distablizing various currencies

    http://statecapture.blogspot.co.uk/2012/05/end-of-commodity-super-cycle.html

  • rate this
    -1

    Comment number 4.

    I thought the moronic act of African governments devaluing their currency died in the 1990s. This stupid act of currency devaluation, has been pushed by the World Bank and the IMF on poor African counties since the 1960s, and is one of the main reasons African economies are unstable. When a country devalues its currency, its buying power is reduced, and its natural resources go on sale.

  • rate this
    +1

    Comment number 3.

    Let me be the first pedant to point out that if the dollar appreciates against the kwcha by 50%, then the kwacha has been devalued relative to the dollar by only 33%.

    It's not rocket science, you know.

  • rate this
    +2

    Comment number 2.

    ExpatKS, nothing better that cheap holidays abroad and telling the locals that is all cheap, when for them it is damn right expensive. Not only does it upset them but makes them think everyone is billionaire over here, until they come over and truly find out.

  • rate this
    0

    Comment number 1.

    Memories of UK devaluation " the pound in your pocket" saga courtesy of Harold Wilson. It's only a matter of time before a few more Countries from closer to home follow the same path. Exit Euro & devalue to get the economies rolling again. We can all look forward to cheap holidays in Greece!

 

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