Donor-dependent Malawi devalues kwacha by 25% as forex runs low

BLANTYRE, May 27 (Reuters) – Donor-dependent Malawi devalued its kwacha currency by 25% on Friday, the central bank governor said, announcing a return to a market-determined foreign exchange rate regime to prop up dwindling foreign currency reserves.

The move came in reaction to rising commodity prices which have hit the country amid declining revenue from tobacco, its major export.

At 0752 GMT, the currency was trading at 1012.69 to the dollar, more than 25% lower than its previous close.

“The RBM will allow the exchange rate to adjust to a market-determined clearing position with a view of endorsing a flexible exchange rate ‘managed float’ regime that allows the exchange rate developments to reflect market fundamentals,” Reserve Bank of Malawi (RBM) chief Wilson Banda said in a statement late on Thursday.

Most of the country’s donors are withholding aid due to concerns around corruption, while analysts have accused President Lazarus Chakwera’s government of politicizing the economy by abandoning an IMF Extended Credit Facility programme without clear justification.

Without an IMF programme, currently now being re-negotiated, Malawi’s economy has been hit by foreign currency shortages resulting in major airlines suspending ticketing, while shops are running out of essential goods like cooking oil and sugar.

Reporting by Frank Phiri; Editing by Bhargav Acharya and Nick Macfie

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