August 10, 2011

Currency devaluated

Malawi’s central bank announced that it had devalued its currency by ten percent in the hope of reviving a stalled programme with the International Monetary Fund (IMF). “It will be up to the IMF to determine whether the programme should be brought back,” Perks Ligoya, governor of the Reserve Bank of Malawi said.

In June, amid the country’s worsening ties with donors, the IMF said its programme with Malawi was “off-track” as the government had failed to review a $79.4-million (55.7-million-euro) credit facility meant to cushion chronic foreign exchange shortages. The global lender had also disagreed with Malawi on the value of the local kwacha currency, pegged for many years at 150 to the dollar, saying it was over-valued and discouraged foreign investment to the poor nation which depends on agriculture and donor inflows for economic survival.

Malawian finance authorities on the other hand argued that devaluation would trigger inflation and hurt the poor in a nation where 39 percent of the population live on less than a dollar a day. The suspension of the IMF programme followed Malawi’s expulsion of Britain’s envoy in April over a leaked diplomatic cable critical of President Bingu wa Mutharika. The former colonial power followed with a tit-for-tat expulsion of Malawi’s envoy and cut direct aid to Lilongwe last month over economic management and governance concerns. Anti-government protests last month against Mutharika’s governance and over massive fuel shortages and the foreign exchange crisis killed at least 19 people after police stepped in to quell demonstrations. Mutharika had rejected the IMF’s call to devalue the currency, saying he was protecting the poor. In June, the IMF said the programme was off-track as the second review of the Extended Credit Facility approved last year to cushion foreign exchange shortages was never conducted. (Times Live)

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