By Burnett Munthali
A currency that continuously depreciates has severe consequences for an economy, affecting businesses, individuals, and the government.
In Malawi, the persistent fall of the Kwacha has led to increased inflation, making essential goods and services more expensive for ordinary citizens.
When the value of the Kwacha declines, the cost of imported goods rises, leading to higher prices for fuel, medicines, and other basic necessities.
Businesses that rely on imported raw materials and equipment face increased production costs, which are then passed on to consumers through higher prices.
The weakening currency also reduces the purchasing power of Malawians, meaning that salaries and wages lose their real value over time.
As a result, many people struggle to afford food, rent, and other basic needs, leading to a decline in the overall standard of living.
For the government, a falling currency increases the cost of repaying foreign debt, as more Kwacha are needed to service loans borrowed in U.S. dollars or other foreign currencies.
Foreign investors also become hesitant to invest in a country where the currency is unstable, fearing losses when converting profits back to stronger currencies.
A depreciating currency discourages savings, as money kept in banks loses its value over time, pushing people toward investing in physical assets like land and livestock instead.
The decline in the value of the Kwacha also leads to increased smuggling and black-market activities as people seek alternative ways to access foreign currency.
The cost of fuel, which is crucial for transportation and electricity generation, rises sharply when the currency weakens, leading to increased prices across all sectors of the economy.
Devaluation can sometimes boost exports by making Malawian goods cheaper on the international market, but this benefit is often offset by the rising cost of imported inputs.
Farmers and businesses that rely on imported fertilizers, machinery, and other essentials suffer as their production costs become unsustainable.
A weakening currency can also result in capital flight, where businesses and individuals move their money to more stable economies to protect their wealth.
To counteract the effects of currency depreciation, the government may be forced to introduce strict foreign exchange controls, limiting access to U.S. dollars and other stable currencies.
Such measures can create shortages of essential goods, leading to panic buying and worsening economic instability.
If not managed properly, continuous currency depreciation can trigger social unrest, as people protest against the rising cost of living and economic hardships.
Malawi’s devaluation crisis requires urgent and well-planned economic reforms to restore confidence in the currency and stabilize the economy.
Policies that promote local production, reduce reliance on imports, and attract foreign investment are crucial to addressing the negative impacts of a falling currency.
Without immediate action, the continued depreciation of the Kwacha will push more Malawians into poverty and create further economic instability.
