Malawi to devalue Kwacha

Reuters

Malawi will devalue its kwacha currency to smooth negotiations with the International Monetary Fund, which is considering a request from the Southern African state for a new financing programme it needs to unlock aid.

“We have made the decision to devalue the kwacha,” Minister of Finance Ken Lipenga, told Reuters on Monday,

Malawi devalued the kwacha last year to 165 to the dollar from 150. But on the black market the exchange rate is nearly double that, reaching 295 to the dollar just before Mutharika's death.

Last December, the IMF suggested a 50 percent devaluation, saying the official rate was failing to anchor inflation expectations because a growing share of imports was being priced at the significantly weaker parallel exchange rate.

A new IMF programme is crucial for Malawi to unlock donor funds frozen over the past year as the country has not received budget support from donors since January last year, creating a budget gap of $121 million in the current fiscal year which ends in July. Britain and the United States have frozen programmes worth nearly $1 billion.