The Malawi Kwacha atypically depreciates despite tobacco sales
Most households across the country are likely experiencing Minimal (IPC Phase 1) food security outcomes, expected to persist throughout the projection period. However, due to prolonged dry spells, areas in Nsanje and Chikwawa districts are reported to have experienced localized below-average production in the 2020/21 production season. As most of the economy is driven by agriculture, income-earning opportunities from labor and self-employment are expected to have reduced in affected areas. As such, Stressed (IPC Phase 2) outcomes are expected to emerge around September/October 2021 in Nsanje and Chikwawa as many poor households run out of own-produced food, with Crisis (IPC Phase 3) outcomes expected around November/December.
In June 2021, staple maize prices ranged from 104 to 162 MWK/kg across twelve monitored markets according to data from the Ministry of Agriculture and FEWS NET. Prices were highest in southern markets and lowest in central markets. From May to June, prices decreased or remained stable in most markets but increased by 6 to 11 percent in four markets across the country. Due to a second consecutive year of above-average production, maize prices continue to trend lower than prices at the same time last year in most markets, by 16 to 36 percent, and below five-year average levels, by 9 to 24 percent. However, prices were above average in three monitored markets, including two in the north which are likely being influenced by prices in Zambia.
The Malawi Kwacha continues to atypically depreciate against major trading currencies despite ongoing sales of tobacco, the main foreign exchange earner. As of July 16, the value of the Kwacha against the US dollar was around 10 percent lower than last year and 8 percent below the five-year average. According to mid-July media reports quoting the Reserve Bank of Malawi, this is largely attributed to changes in government policy including the removal of currency swap mechanisms which have previously held the Kwacha steady in times of lower reserves. Repayment of currency swap loans and increased demand from the commercial sector (following recovery from COVID-19 supply chain disruptions) are reportedly causing foreign exchange shortages. Consequent depreciation of the currency has been putting upward pressure on prices of imported commodities such as fuel and cooking oil, reducing purchasing power for poor households.
Malawi has been experiencing a third wave of COVID-19 since mid-June 2021. The Delta variant has been confirmed in Malawi with only about 2 percent of the population at least partially vaccinated and 1 percent fully vaccinated as of late July, and cases are being reported in rural areas at higher rates than during previous waves. The Ministry of Health re-enacted several preventive measures in early July—including restricting the size of gatherings to 50 indoors and 100 outdoors, restricting capacity of public transport to half of normal, and restricting business operating hours—and is reportedly more strictly enforcing border entry limited to Malawi residents only. Though disruptions to economic activity have not been as severe as during previous waves, additional control measures would likely reverse improvements in income-earning among urban households.