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IMF pressures Malawi to devalue currency

By AFP
Malawi Foreigne exchange imbalances have limited Malawi's economic growth, says the IMF.  By Amos Gumulira AFP
MAR 31, 2012 LISTEN
Foreigne exchange imbalances have limited Malawi's economic growth, says the IMF. By Amos Gumulira (AFP)

LILONGWE (AFP) - The International Monetary Fund on Saturday again pressured impoverished Malawi to devalue its currency, which is trading on the black market at nearly double the official exchange rate.

"The Malawi kwacha exchange rate should be moved closer to that on the parallel market and be made flexible to control spiralling commodity prices and restore vibrant private sector activity in the country," the IMF's Malawi mission chief Tsidi Tsikata told a news conference.

"Of course the parallel rate has some risk premium in it. But the official rate still has to move closer to that to correct the imbalances on the market," Tsikata said, speaking alongside Malawi's Finance Minister Ken Lipenga.

Officially, one US dollar sells at 165 kwacha, but goes for 300 on the black market.

Speaking at the end of an IMF mission here, Tsikata said foreign exchange imbalances had knocked down growth to 4.5 percent in 2011, from 6.6 percent the year before.

He said this had caused shortages of fuel, imported fertilizers and medicines, while forcing businesses to lay off workers.

He blamed President Bingu wa Mutharika's tightening of foreign currency controls for boosting the informal market, costing the government lost tax revenue.

In June last year, amid worsening ties between the southern African country and 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 the chronic foreign exchange shortages.

Tsikata said the IMF board will meet in May to discuss the findings on the Malawi staff mission and make a decision on the way forward.

Lipenga said his government was designing a "comprehensive package" to address the economic malaise, but provided no details.

Mutharika argues 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.

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