Economists have broadly supported the Reserve Bank of Malawi’s (RBM) decision to resist calls for a fresh devaluation of the kwacha but warn that without strong fiscal reforms and export-led growth, the policy may prove unsustainable in the medium-term.
In a statement issued on Monday, RBM governor McDonald Mafuta-Mwale ruled out any immediate devaluation, citing renewed donor confidence and improved foreign exchange inflows.
But economists say the country’s limited reserves are enough to cover just 2.1 months, according to the RBM August Monthly Economic Review, leaving the kwacha exposed to shocks and market pressure.
In an interview yesterday, Economics Association of Malawi president Bertha Bangara-Chikadza described the bank’s stance as “valid for stabilising expectations” but warned that it must be matched with decisive reforms.
“Import cover around 2.1 months means low reserves, and it may leave the currency exposed to shocks. RBM’s refusal to devalue is valid as it can stabilise expectations and reduce anticipated inflation,” she said.
However, Bangara-Chikadza, an economics lecturer at the University of Malawi, cautioned that without reforms, decisive fiscal consolidation, transparent foreign exchange management, export-led growth policies and accelerated debt restructuring, the ‘no-devaluation’ position risks being unsustainable and could amplify future exchange rate and inflation shocks.
She said the government’s strategy should include export diversification and value addition, particularly in higher-value agriculture, processed goods, tourism and minerals alongside improved trade facilitation and credible fiscal consolidation.
Scotland-based Malawian economist Velli Nyirongo agreed that the RBM’s message is aimed at calming the market and discouraging speculative behaviour, but questioned the sustainability of maintaining the exchange rate on donor inflows alone.
He said: “It will take more than a few donor inflows to maintain the value of the kwacha. What the governor is trying to do is to instil confidence in the market.
“But the government must focus on export-oriented projects, including mining, because at the moment it’s difficult to see which short- or medium-term projects can stabilise the forex situation. That’s the conundrum the new administration must fix.”
Mzuzu University economics lecturer Christopher Mbukwa described the decision to hold off on devaluation as “socially sound”, but economically fragile without structural changes.
“The ministry is correct to hold off on devaluing the currency because it will cause inflation and impoverished people already on the margins. However, the decision to hold off on the devaluation will only pay dividends if the government expedites reforms to boost exports,” he said.
The economists’ remarks come amid continued volatility in the parallel market, where the kwacha is trading between K3 500 and K4 500 against the dollar, more than double the official rate of K1 751.
While the RBM projects improved donor inflows and compliance from banks will restore market order, analysts argue that credibility will depend on how quickly the government translates optimism into action.
