UNDERSTANDING CURRENCY DEVALUATION

Since the government devalued the Kwacha, I have read in the papers and heard on the radio statements that are implying that the government was wrong to devalue the currency.


I am not an economic expert and I do not have any formal knowledge of how the money market works. I am however of the view that any criticism being leveled on the government on this issue is not only unfair but also misplaced. Malawians need not to be reminded that the president was so reluctant to devalue the kwacha. He was clear that devaluing the currency would hurt more poor people than those who were advocating for it. However, civil society organizations led by the International Monetary Fund (IMF) and World Bank dismissed the president’s argument as “empty” . By devaluing the Kwacha they argued, “the country would be able to solve the foreign currency crisis allowing companies to be able to produce and thus put the economy back on track” However, what the president’s opponents did not say is that much as the companies would be able to produce, such goods would be produced at a higher cost which would inevitably affect their pricing.

Now that the Kwacha has been devalued, Prices of goods are rising- the price of Sugar and Bread being the most apparent ones- and we should brace ourselves for more; the price of petroleum products and fertilizers may rise too- it is unfortunate that other members of the civil society would like to make us believe that the government should be blamed for such price increases. The Malawi Congress of Trade Union for example, has gone as far as demanding a pay rise and threatening to call a national wide strike should this not be approved.

Frankly, such demands are very unreasonable and reckless attempts to gain cheap political mileage. It is obvious that no one would refuse a pay rise and most people are ready to do whatever it takes to get it. But one wonders whether in proposing a national wide strike, these leaders really have the welfare of the country and the people they claim to serve at heart given that any national wide strike would cripple the country’s social system and hurt more people than the currency devaluation. By urging the president to devalue the Kwacha, I believe the learned men and women in the civil society knew that prices were bound to rise. This is considering the fact that devaluations of any currency will always work better in economies that are able to produce and export. This is so, as a weaker currencies have a tendency to make exports cheaper and imports expensive. Thus for countries like South Africa for example, devaluation may not be necessarily a bad thing since that would allow them to produce and export more than other competitors in the region who have a stronger currency. Unfortunately for us, we are a predominantly importing and consuming country hence any devaluation of the currency has a significant impact on the prices of goods.

It is my opinion that the civil society leaders who not so long ago were in the fore front urging the president to devalue the Kwacha are very conversant with these facts and that by insisting on the devaluation, they assumed that this would be a necessary evil given the situation we have found ourselves in. It is thus surprising that the very same leaders would have the courage to stand up and accuse the president of having devalued the currency and hurting the poor with price hikes.

The civil society leaders need to be reminded that while some of the pressure they are piling on the president is necessary and justified, it is irresponsible to deliberately set up things and blame the country’s leadership for the aftermath. Malawians are watching and should not be taken for granted. By displaying such irresponsible behavior, the civil society risk losing their credibility and may end up derailing the progress made in other justifiable fights. The Civil society leaders who are blaming the president for the price increases should be ashamed of themselves for trying to divide an already divided nation for the sake of positioning themselves for the 2014 elections.

Responsible Civil society leaders should be able to work with the government in explaining what the devaluation means and also to look for ways through which the poor can be protected from the effects. Instead of pointing fingers just for the sake of gaining political popularity, Malawians from all sectors should work on designing social safety nets and refocus their energies in getting the economy up and running again lest we risk becoming a failed state.