Malawi’s central bank devalued its currency by 10 percent after a cut in foreign aid worsened shortages of fuel and foreign currency.
The kwacha will sell for about 165 to the dollar, Reserve Bank of Malawi spokesman Ralph Tseka said today by phone from Lilongwe, the capital.
The International Monetary Fund has urged Malawi to “ease” its exchange rate, which was pegged at about 151 to the dollar, and to end subsidies on fuel. President Bingu Wa Mutharika, a former World Bank economist, said June 24 that Malawi wouldn’t devalue the kwacha without IMF support to cushion the southern African nation against price rises.
Ruby Randall, the IMF representative in Malawi, didn’t answer six calls to her phone seeking comment.
The U.K. withdrew aid worth $550 million for Malawi on June 2 after the government deported a British envoy who criticized Mutharika in a leaked memorandum. The U.S. suspended a $350.7 aid accord to improve electricity supplies after Malawian police killed 18 people protesting against rising costs and shortages.
Malawi depends on foreign aid to fund about 40 percent of its annual budget.
The Malawi Bankers Association said the devaluation alone isn’t enough to resolve Malawi’s economic problems.
“More needs to be done,” the association’s president, John Biziwick, said today in an interview in the commercial capital, Blantyre. “Devaluation alone is not enough.”
Earnings from tobacco, which provides Malawi about 60 percent of its export income, may slump 33 percent to $300 million this year because farmers are rejecting low prices, Finance Minister Ken Kandodo said in June.
Kandodo said Malawi’s economy would likely grow 6.6 percent this year, its eighth year of expansion. The increase would be little changed from the 6.7 percent recorded in 2010, he said.