Malawians are expected to feel the pinch as final decision to devalue the Kwacha is expected to be implemented tomorrow May 7 2012. According to a highly placed source from one of the leading commercial banks, the government has given a go-ahead to devalue the currency, which both local and international community believed to be over-valued.
As at the close of trading on Friday May 4 2012 the Kwacha was trading at an average K166 to the United States Dollar.
With the decision, my source told me, the currency will now float at K270 to the US$, representing a 60% slump. This is way above the anticipated 40% rate of devaluation which the State President Mrs Joyce Banda hinted a week ago.
Since President Banda made the announcement of the impending devaluation, there has been panic on the local market with some traders hoarding forex as well as goods in a wait-and-see scenario. Her announcement received a sharp criticism from the then President of the Economics Association of Malawi (Ecama), Naomi Ngwira who feared the executive announcement would further worsen the forex situation in the country.
The leading world financial institutions, the International Monetary Fund (IMF) and the World Bank have been on the Malawi government’s neck demanding to let the Kwacha float freely as a prerequisite to resuming the budgetary support.
Currently, the Kwacha has been trading at K280 to K300 to the US$ at the parallel (black) market.
Further, the government has reversed its decision of closing the money exchange bureaus which it had ordered closure in 2009 for non-compliance with the Exchange Control Regulations 2007. The government first cracked its whip on the forex bureau operators in 2007; attracting a legal battle which the operators lost to the government regulator, the Reserve Bank of Malawi (RBM). Since then, private forex bureau operators have been operating under licensed commercial banks and not as separate entities.
The announcement of re-opening the closed bureaus will be made soon; according to my source.