Malawi at risk in wake of currency devaluation

The Reserve Bank of Malawi revealed that economic liberalisation intensified risks to the country's financial stability in a report published on January 31.

In May 2012, the Malawian kwacha was devalued by approximately 50% and the government adopted a floating exchange rate regime as part of a policy overhaul to liberalise the country's economy. In the aftermath, the report says, domestic macroeconomic and financial risks intensified.

The kwacha continued to depreciate and, in addition to increased food scarcity, contributed to increased uncertainty and "a surge in inflation expectations", the Malawian central bank governor Charles Chuka wrote in the report. Inflation rose from 11.4% in March to 28.3% in September.

In six months' time, however, the governor expects Malawi's tight monetary and fiscal policies will stabilise the exchange rate and reduce the inflationary pressures.

Click here to read the report.