The currency has depreciated by nearly 50%! Watch next week's IMF meeting

Due to a shortage of dollars, Malawi's currency has depreciated by 44%, restricting imports of fuel and other commodities from the heavily indebted southern African country.

(Source: Bloomberg)

The Reserve Bank of Malawi said in a statement that the dollar/kwacha was quoted at 1,700 on Thursday (Nov 9), compared with 1,180.29 previously. The adjustment has reduced the value of the kwacha by two-thirds compared with the beginning of the year, according to data compiled by Bloomberg.

Malawi, a net importer of food and fuel, is struggling to recover from a series of shocks in recent years, including the Covid-19 pandemic, soaring global food prices and the devastating cyclone that killed hundreds in March. The country's official foreign exchange reserves had dwindled to 261 billion kwacha ($223 million), the equivalent of less than a month's worth of imports, by the end of September, according to central bank data.

The scarcity of US dollars in Malawi has forced people to take to the streets in search of foreign currency, with the kwacha/US dollar commercial exchange rate in Malawi at $1,950 on Thursday, according to currency traders in the capital Blantyre.

The dollar shortage in Malawi is similar to that in other African countries such as Nigeria, where there is a large gap between the official and parallel exchange rates.

Betchani Tchereni, associate professor of business and applied sciences at the University of Malawi, said: "The reality is that the divergence between the parallel exchange rate and the official exchange rate is so great that it hurts the fragile economy." He said it was the fifth devaluation of the central bank this year.

The Central Bank of Malawi has been conducting regular sales to help determine the market exchange rate for the kwacha. At the beginning of the year, the exchange rate of the currency against the US dollar was 1,025.50.

According to a statement signed by Wilson Banda, governor, the latest devaluation is aimed at correcting the imbalance between supply and demand and addressing arbitrage opportunities in the market. "Spot checks of some market participants suggest that the market is able to liquidate import charges at the new rate," the report said.

The executive board of the international monetary fund (IMF) will meet next week to discuss a 48-month extended credit facility for Malawi that could free up $174 million over four years. In 2022, the country becomes the first low-income country to receive financing from the international monetary fund, a new tool designed to help countries cope with global food price shocks.