By Chisomo Phiri
President of the United Democratic Front (UDF ),Atupele Muluzi,has called for Malawi to liberalize its exchange rate system, arguing that the country is already operating under an unofficial devaluation driven by black market forex trading.
In an interview with 247 Malawi News,Muluzi said many people are confusing devaluation with floating or liberalizing the exchange rate, stressing that the two concepts are different in economics.
“A devaluation happens when government or the Reserve Bank officially reduces the value of the currency by fixing a new lower exchange rate.
“For example, moving the Kwacha from MWK 1,700 to MWK 3,000 to the dollar through a government decision,” he said.
The UDF leader said a floating or liberalized exchange rate, on the other hand, allows the value of the currency to be determined more freely by market forces of supply and demand.
“In simple terms, buyers and sellers of forex determine the rate,” said Muluzi.
He noted that Malawi currently has two exchange rates, the official rate and the black market rate with many businesses already buying foreign currency on the parallel market at rates of around MWK 4,000 to the US dollar due to shortages in banks.
“This means that, in reality, the economy has already adjusted to a much weaker Kwacha, only unofficially and in a disorderly manner,” he said.
Muluzi argued that properly liberalizing or floating the exchange rate, combined with support from bilateral and international partners to inject foreign currency into the market, would help restore forex availability in banks, reduce speculation, and eliminate the black market.
He referenced reforms implemented in 2012 during the administration of former President Joyce Banda, saying Malawi faced a similar economic crisis at the time.
“In 2012, President Joyce Banda inherited a situation very similar to what we are facing today, no forex in the banks and a parallel market where the exchange rate was almost double the official rate,” he said.
According to Muluzi, the government at the time introduced bold policy reforms, including floating the exchange rate and securing support from bilateral partners.
“The result was immediate. The parallel market was virtually eliminated overnight, forex became available in banks, and the economy began to stabilize,” he said.
He proposed a similar strategy for the current economic situation, suggesting that Malawi should negotiate with bilateral partners to inject US dollar liquidity into the economy while simultaneously liberalizing the exchange rate.
The son to the Malawi second president Bakili Muluzi,argued that a more realistic and stable exchange rate, potentially around MWK 2,500 to the dollar, with forex available in banks would be preferable to the current situation where businesses and consumers are forced to rely on black market rates.
“Let us open our eyes.In effect, we have already devalued the currency through the parallel market. The question is whether we confront reality and stabilize the economy, or continue pretending while businesses and ordinary Malawians suffer,” he said.
