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Kwacha devaluation: the devil is in the details
It will take at least a year to achieve macroeconomic stability, and it will take many years for consumers to regain their purchasing power.
By Kingsley Jassi
Malawi: The dollar was already selling for more than K1000 at forex bureaux and on the black market.
Because the majority of small traders were accessing it at that rate, the devaluation will have a little direct impact on them.
However, importers of fuel and fertiliser, among others, who were accessing the dollar at the controlled lower rate of around K820 are now severely impacted.
As a result, fuel prices will have to be adjusted to account for the cost of importation.
Because of higher transportation costs, inflation will likely rise even faster than it is now.
The cost of borrowing will then rise due to two factors: banks must recover exchange rate losses, and the central bank will tighten monetary policy to control inflation.
Food prices will be high this year due to transportation costs, and they will be even higher next year because fertiliser prices for the next crop will be triple those of the previous crop.
It will take at least a year to achieve macroeconomic stability, and it will take many years for consumers to regain their purchasing power.
Some will undoubtedly fall out of the middle class.
Many people are now impoverished, and with the recently adjusted poverty line of $2.15 per day, the poverty rate should be close to 90%, with urban poverty thriving.
This has a significant impact on the country's medium-term goals, and changing the cause will require significant sacrifices and a completely different fiscal policy.