Kwacha to remain overvalued in 2024 –analysts

Analysts are expecting the kwacha to remain overvalued in 2024 despite the central bank’s ongoing forex auction exercises.

The prospect, as highlighted in a NICO Asset Managers annual report, comes at a time the Reserve Bank of Malawi (RBM) is thrashing social media speculations about a fresh devaluation.

The investment analyst’s 2023 annual report anticipates 2024 to be equally challenging in regards to foreign exchange perspective despite the Extended Credit Facility (ECF)’s resumption.

Approved last November, the International Monetary Fund (IMF) programme guarantees some inflows of donor funding including budgetary support.

But according to the report, Malawi’s wide current-account deficit, high public debt and huge positive inflation differential with trading partners will continue to undermine the value of the kwacha.

“However, the gradual shift towards a market-led exchange rate has begun through the biweekly exchange rate auctions held by the RBM with Authorized Dealer Banks.

“However, the Kwacha is expected to remain overvalued in 2024 owing to foreign-currency shortages, as a result of declining foreign currency reserves and limited letters of credit from international banks, which have been crucial in providing short-term liquidity support,” reads part of the report.

Meanwhile, the RBM has maintained the local unit at K1,700 to a dollar after its latest forex auction.

The IMF, which is demanding the removal of subsidies and improvements in spending efficiency, is this summer expected to assess the progress of macro-economic adjustments under ECF.