UN urges exchange rate reform, policy stability

Malawi must urgently unify its exchange rate regime and maintain a stable monetary policy stance to withstand mounting external shocks, according to a United Nations policy brief assessing risks linked to the escalating Middle East conflict. The report themed, ‘Middle East Conflict—Macro-Fiscal and Socio-Economic Impact on Malawi’, identifies exchange rate unification and policy rate stability as critical to restoring macroeconomic balance, anchoring inflation expectations, and improving foreign exchange flows. It notes that the current overvalued official exchange rate, alongside a widening parallel market premium, currently estimated at 140 percent, is discouraging exports and limiting formal inflows of foreign currency.

“A phased move towards a unified, market-clearing exchange rate is therefore recommended to reduce distortions and improve external balances,” the report reads. On monetary policy, the report urges the Reserve Bank of Malawi (RBM) to resist further interest rate cuts following its recent reduction, warning that premature easing could worsen inflation and accelerate currency depreciation. Instead, the central bank is advised to maintain a cautious stance and stand ready to tighten policy if inflationary pressures intensify, to avoid a depreciation–inflation spiral.

Other immediate measures include reassessing fiscal assumptions to reflect emerging global risks and enforcing the Automatic Fuel Pricing Mechanism (APM) to avoid hidden liabilities. IMF data shows that fuel liabilities had risen to nearly K1 trillion in 2025. Beyond macroeconomic adjustments, the brief highlights the need to strengthen trade performance and economic resilience through structural reforms.

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Ministry of Industrialisation, Business, Trade and Tourism spokesperson Patrick Botha said Malawi is already taking steps to improve trade under the African Continental Free Trade Area (AfCFTA). “As a country, Malawi is undertaking various initiatives to advance the AfCFTA agenda,” he said. Botha cited the launch of the Dedza–Calomue One Stop Border Post with Mozambique as a key initiative to reduce clearance times and improve border efficiency.

He also said the government is rolling out the Malawi National Single Window, an electronic platform designed to reduce the time and cost of processing trade documentation. In addition, the government is implementing coordinated border management to streamline processes and reduce the number of agencies operating at border posts. Botha said Malawi has also undertaken targeted trade missions to countries including Angola, Mozambique, and Kenya, aimed at opening new markets for Malawian products.

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