Malawi’s Kwacha currency devalued by 25% in 2022
Economics 101. You do not devalue your currency when you are a NET IMPORTER.
Countries use evaluation to boost exports due to the lowered value in currency perceived by countries that import the goods.
Malawi is a NET IMPORTER, not a NET EXPORTER. So, the devaluation of the kwacha will not yield it any benefit.
I will share more basics in the next post.
To see failures of devaluation as an economic policy or tool, look at Brazil. In 2011, the Brazilian real was steeply devalued. As a result, it encountered many other problems, such as declining crude oil and commodity prices.
Brazil, despite having commodities that it exports to other countries, such as oil, etc., devaluation did not achieve the intended goal.
The late Professor Bingu wa Mutharika (MHSRIP) warned against the devaluation of the kwacha. In fact, he fought against implementing that policy, and Malawi was saved.
For the MRB to resort to devaluation of a kwacha when we remain a net importer with a negative balance of payment remains a mystery.
The MCP government treats these policy instruments as gimmicks to use, but they fail to appreciate the dire consequences that it will have on ordinary Malawians.
Some “keyboard” and “Facebook Economists” are claiming that there would be “temporary” period of inflation that would finally stabilize. That is wrong and uninformed thinking.
As we speak, Malawi is facing a steep rise in inflation, which the government had no policy response to. Because Sosten Gwengwe and the MRB Governor have no policy response strategy.
It is the case of the blind who try to lead those who can see.
Currency devaluation at the height of a technical recession and sharp rise of inflation is equivalent to pouring petrol on fire.
Chakwera and his economic team have just sunk Malawi into a further economic crisis that is going to sink the country into further poverty.
My fellow friends, and patriots. Brace yourself for the worst times to come – and always remember, the problems were manufactured, by the MCP government that is clueless about how to run the economy.
I speak as a highly qualified Economist.