Nico Asset Managers says lack of monetary stability and high inflation in Malawi relative to its trading partners will cause the kwacha to continue depreciating against the US dollar from 2024.

The investment management firm said in its 2022 annual report that owing to a chronic current-account deficit, the kwacha regularly comes under pressure, which has been exacerbated by high global commodity prices.

Kwacha has been losing ground to the dollar

Said the firm in the report: “As a result, foreign exchange has continuously been in short supply, leading to shortages of key commodities, such as oil, in the country.

“The over reliance on tobacco, a crop that underperformed during the 2022 selling season, further exacerbated the foreign exchange supply imbalances. Malawi’s lack of diversification in its export base and reliance on rain-fed agriculture has led to fluctuations in foreign exchange receipts.”

The firm projects the nominal exchange rate of K1 064.4 against the US dollar by end-2024, with further depreciation expected to go to K1 214.9 against the US dollar by end-2027.

In 2022, using the Reserve Bank of Malawi (RBM) middle rates, the local unit depreciated against the US dollar, the British pound, the South African rand and the euro by 25.73 percent, 15.56 percent, 21.42 percent and 21.80 percent, respectively.

The kwacha closed the year at K1 026.43 against the US dollar at the end of December 2022 compared to K816.40 against the US dollar at the end of 2021.

During the year under

GRAPH: NATION

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