Former Reserve Bank Governor Dalitso Kabambe and former Finance Minitser Joseph Mwanamvekha has torn apart foreign exchange auctions announced by the Central Bank, saying it will lead to devaluation of the kwacha and high cost of living.
Between the two, they managed to bring inflation down to single digit, stabilised the Kwacha at K750 to US dollars and had generated foreign exchange cover for over five months.
Two years of Tonse Alliance administration the kwacha has lost more than 50% of value, inflation is well over 30% and foreign exchange reserves are below 1.5 months cover.
RBM has introduced Periodic Foreign Exchange Auctions that will see Authorized Dealer Banks (ADB) submitting bids to sell foreign exchange to the Central Bank at prices set by the banks.
RBM Governor Wilson Banda justifed the decision was made to help determine and maintain a market clearing price for the Malawi Kwacha against the United States Dollar and other major currencies.
Mwanamvekha who has served as Finance Minister and Secretary to the Treasury said the policy already failed and sent the kwacha into devaluation of over 300i% 1990s and 1995.
“After introducing this system in January 1994, the Malawi Kwacha devalued by over 300 percent by end of February, 1994. Inflation and interest rates increased to unmanageable levels and peoples disposable incomes declined heavily thereby making Malawians poorer than they were before,” said Mwanamvekha.
Mwanamvekha has therefore feared for massive and unprecedented devaluation, increase in inflation and interests rate that will increase the cost of living.
“The MCP government has announced that it will be embarking on Forex Auction. This is another step in a wrong direction. It is the lack of financial prudence and sound economic principles that has forced this administration to resort to this measure. As it is we can simply say that the Kwacha is being devalued silently with the government opting to heap the blame on the private banks,” charged Kabambe in his official Facebook post.
Kabambe said the bank will use the auctions as a cover for its faliures saying the country’s economy has been worsened by rampant corruption, borrowing appetite, needless payouts and all the shoddy economic principles this government implemented in 2020.
“Sadly, the first step is fixing the same economy. Fixing the economy the MCP way is a dangerous way. It leaves prices skyrocketing and basic goods not being available,” said Kabambe.
The Central Bank is yet to respond to the sentiments by the two financial gurus.