NPC for exchange rate unification

The National Planning Commission (NPC) says exchange rate unification (devaluation) could help solve current economic challenges like forex scarcity but needs to be implemented jointly with a broad reform package to ensure stability. In a policy note titled: ‘Does Malawi’s exchange rate regime keep prices low? Evidence and policy implications’, the commission argues that devaluation is not a silver bullet, but rather an essential part of a broader reform package that must also include the adoption of sound fiscal and monetary policies.

The policy brief, also published on International Food Policy Research Institute (Ifpri) website, notes that the current exchange rate regime is untenable as it results in multiple effective parallel rates, that impose significant costs on the economy and the daily lives of citizens. For instance, it observed that although removing the exchange rate regime would trigger rampant inflation and worsen livelihoods, the widespread importation of products at informal exchange rates means that the average citizen derives little real benefit from the maintenance of the official rate. According to the commission, there must, therefore, be a credible and durable switch toward a more flexible and transparent exchange rate regime though it will take time for exports and growth to pick up after a devaluation because of macroeconomic conditions.

“The priority now is to complete exchange rate unification, decisively and transparently, so that Malawi can put an end to opaque and uncertain access to foreign currency, allowing importers to source essential inputs, formal exporters to be rewarded at the true value of their outputs, and investors to plan and repatriate profits with confidence. “However, it is not a silver bullet, but rather an essential part of a broader reform package that must also include the adoption of sound fiscal and monetary policies and the establishment of a business environment that builds trust,” reads the brief in part. The policy note has since estimated the short-run price effects of devaluing the kwacha from the current official rate of K1 751/USD to K4 400/USD – the median informal market rate in 2025 which is lower than the peaks of K4 900/USD registered briefly in February and September 2025.

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Produced by Frederick Changaya, Andrew Comstock, Joachim De Weerdt, Jan Duchoslav, Andrew Jamali, Frank Kamanga, Grace Kumchulesi and Karl Pauw, the study, however, recommended measures that could be jointly applied to support the exchange rate unification. “Longer-term economic growth and sustained price stability will hinge on the effective execution of a coherent set of complementary reforms. Exchange rate unification is a necessary component of this package, but it is not sufficient,” it adds.

In a joint policy note titled ‘No Time to Waste: Policy Priorities for Malawi’s Recovery’, the institutions said gross official reserves—foreign currency held directly by the Reserve Bank of Malawi (RBM)—have fallen while net reserves have remained negative since 2020. RBM data show that total reserves stood at $526.8 million in recent months, equivalent to about 2.1 months of import cover—well below the 3.9 months recommended by international financial institutions—highlighting the strain on Malawi’s external position. The International Monetary Fund (IMF) earlier also flagged exchange-rate misalignment as a key source of economic distortion.

IMF resident representative for Malawi Nelnan Koumtingue said the official exchange rate remains significantly overvalued. “Our estimates show that Malawi’s official exchange rate is currently overvalued, creating significant distortions across the real economy,” Koumtingue said.

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