Malawi economist Munthali speaks on introduction of K2000 note: government’s over expenditure accelerating inflation

BLANTYRE-(MaraviPost)—Renowned economist Thomas Munthali has warned that depreciation of the Malawi currency is likely to continue if the government fails to put in place control measures on expenditure.

Munthali’s sentiments come amid announcement by the Reserve Bank of Malawi (RBM) that a K2000 note will be introduced by December.

Speaking to Zodiak on Saturday morning, the Zimbabwe based Malawi economist has said the RBM decision to introduce K2000 note shows that the central bank has acknowledged the economic challenges facing the country.

Munthali has said the central bank decision is aimed at reducing printing costs of the money in face of high inflation and devaluation of the local currency.

Responding to a question on whether the introduction of the new bank note signifies failure by the central bank to stop devaluation, Munthali said the over expenditure by the central government has contributed to the prevailing situation.

“I don’t think the central bank role is to manage devaluation. They are not there to stop devaluation but they have to make sure that if circumstances are pointing towards a situation where devaluation will continue, they have to find mechanism of addressing that. And by introducing this K2000 bank note it in no way we are going to stop devaluation.

“In fact what we have addressed are the symptoms of the challenges we are in and they think that the challenges will not be coming off any time soon. It goes back to the need for those in authorities like those in government to reduce expenditure levels because high inflation and pressure are as a result of the central government over expenditure,” said Munthali.

RBM said the current highest note of K1000 has lost value hence the decision to introduce the new kwacha note, K2000 on 19 December, 2016.

Making the announcement in Lilongwe on Friday, Governor of the central bank, Mr Charles Chuka said the number of K1000 notes in circulation has increased from 13 percent in 2012 to 36 percent in 2016.

“This has resulted in the general public carrying large amounts of cash when doing transactions risking their lives and property,” Chuka said

Chuka also said the introduction of the note has been necessitated due to the depreciation of the kwacha and inflation.

The kwacha is currently trading around K730 to the dollar while inflation hovers around 22 percent.

Chuka said the introduction of the note is also in accordance with Section 17 of the RBM Act of 2010.

The front of the note will bear the portrait of Reverend John Chilembwe while the back will have a motif of the Malawi University of Science and Technology located in Thyolo district depicting the theme of social development.

According to Chuka, the highest note should also be an equivalent of $5 even though K2000 will also fall short of the requirement.