Initially, they thought it was the “hoarding bet”. But economists now call it a sequencing error.
Prior to securing the previous Extended Credit Facility (ECF) with the International Monetary Fund (IMF) in November 2023, Malawi devalued the kwacha twice. Firstly by 25 percent in May 2022 and secondly in November 2023 by 44 percent.
Four days before the first devaluation implemented on May 27 2022 under President Lazarus Chakwera, the then Reserve Bank of Malawi (RBM) director of economic policy and research Kisu Simwaka laid out the problem plainly in a Facebook.
He wrote: “We have two key serious macroeconomic problems. We are a country that is consuming more than we are producing. We are also a country that is importing more than we are exporting.
“My main worry is that we may end up handing over to future generations a country and an economy that is in a more pathetic situation than we found. The time to start doing that is now. So help us God!”
Malawi is currently discussing a new ECF with the IMF amid assurance from Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha that the government will prioritise conditions that will not hurt the masses already reeling under a burden of high cost of living.
University of Malawi economics lecturer Edward Leman, who specialises in monetary policy, said in an interview that the policy to devalue the kwacha in 2022 and 2023 was done in the wrong order.
He said: “The main challenge is that Malawi has repeatedly devalued the currency without first establishing the conditions needed to boost exports and foreign exchange earnings.
“While devaluation can theoretically improve the trade balance by making exports more competitive and imports more expensive, its success depends on having a strong and diversified export base. The key questions remain: which exports are expected to benefit, and what new exports are being developed?”
The May 2022 diagnosis by Simwaka, now RBM Deputy Governor for operations, and Lemani’s analysis point to the same gap. Malawi tried to use price to fix a production problem.
In his post, Simwaka had said: “The producer and exporter is not being supported sufficiently.”
Three years later, immediate-past RBM Governor MacDonald Mafuta Mwale returned to the same point in June 2025, stating: “We have had a lot of devaluations without achieving the intended result and we cannot repeat that because it only hurts our people with inflation. Our emphasis is now on enhancing foreign exchange supply through local production and exportation.”
By then the kwacha was more than 72 percent weaker than in May 2022. But without a diversified export base, Leman argues, devaluation did the opposite of what was intended.
“Without stronger production and export growth, devaluation mainly raises the kwacha cost of external debt, fuels inflation and puts additional pressure on government finances,” he said.
Five months after Mwale’s statement, in mid 2025, the ECF went off-track over missed targets. Gross reserves remained below two months of import cover and the gap between official and parallel rates widened.
Missing inflows and parallel market
Devaluation was also presented as a step to restore stability and re-engage the IMF and development partners.
After May 2022, only limited budget support came in. After the November 2023 one, the European Union (EU) released €40 million. Total budget support between 2022 and 2025 reached about $112 million.
Leman says building a devaluation around such inflows was risky.
“Relying on aid and grants to support a devaluation is risky because such inflows are uncertain,” he said. “It is indeed true that exporters and firms are being affected by forex issues and the presence of vibrant parallel markets.”
With supply constrained at official auctions, businesses turned to the parallel market. By December 2025 the parallel rate was trading around K2 350 to the dollar, about 32 per cent above the official rate of K1 751.
How it fed trade deficit
Malawi’s trade structure did not change. Malawi still imports what it cannot make and exports what it does not process.
The first problem was imported inflation. As the kwacha slid from K1 036 to K1 751, the local cost of fuel, fertiliser and medicines rose by more than 70 percent.
The Southern African Development Community (Sadc) trade deficit widened from about K480 billion in May 2022 to an estimated K1.4 trillion by end-2025. The global deficit rose from about K650 billion to K1.7 trillion over the same period.
The second issue was the auction. After November 2023, RBM moved to weekly forex auctions. With limited supply, the rate kept weakening and firms front-loaded imports.
The third factor was the tepid export response. Tobacco, soya and sugar still account for about 80 per cent of exports, and all are sold largely unprocessed. The 44 per cent devaluation did not create a cooking oil plant or a textile mill. Leman’s question, therefore, remains: what new exports are being developed?
Who paid the price?
The Affordable Inputs Subsidy was the first casualty.
In Kasungu, a 50kg bag of fertiliser cost K38 000 in May 2022. By October 2024 it was K70 000 and now the same bag is fetching K210 000. A Parliamentary Agriculture Committee report notes government spent far more kwacha to buy the same volumes because imports were priced at a weaker rate.
The second was the transporter
Diesel was K1 820 per litre in May 2022 and by November 2024 it was K2 990 although it could have been worse had government triggered the automatic pricing mechanism for determining fuel prices. Instead Capital Hill kept prices artificially lower than landing costs, which hurt fuel importers and wiped out levies that were supposed to be collected for rural electrification, road maintenance and other services.
The third was the manufacturer. At a Blantyre food plant, packaging costs are up more than 70 per cent since May 2022.
“We were told to support producers in May 2022. Then we made their inputs 70 per cent more expensive in June 2022,” a manager said.
Back to production
RBM’s June 2025 position now mirrors both Simwaka in 2022 and Leman’s advice today: grow output first.
Leman says three things must happen for that to work.
First, generate more dollar inflows. If Malawi exported an additional $500 million in processed goods, those dollars would enter the banking system and narrow the gap between official and parallel rates.
Second, cut the import bill. The Agriculture Committee estimates that replacing 30 percent of fertiliser imports with local blending could save about $80 million a year.
Third, create new exports. That answers Leman’s central question. Without value-added exports, any future devaluation will produce the same result: higher prices, no forex.
The hard choice ahead
The IMF is back in discussions with government. Development partners are also at the table.
The question is whether the next programme will start with exchange rate flexibility, or with Leman’s recommendation: expand production and export capacity first.
Malawi diagnosed the problem correctly in 2022. It adjusted the exchange rate in 2022 and 2023. In 2025 it returned to the 2022 diagnosis.
As Leman puts it: devaluation works only after you build what you intend to sell.
Before the next adjustment, government must answer three questions:
· What will Malawi sell to Sadc and the world?
· What will the country stop buying?
· How will the nation finance production at scale?
Without those answers, the kwacha will keep finding weakness in shocks.
With the answers, it can finally find strength in what the country produces.
In a separate interview, former finance minister during Chakwera’s tenure, Sosten Gwengwe defended the rationale behind the 2022 exchange rate reforms, but argued that the expected benefits were undermined because the IMF-supported programme was not fully implemented.
He said: “I was no longer Minister of Finance the week the devaluation was done. I was fired immediately the ECF was approved by IMF and Malawi never passed a single review thereafter.”
Gwengwe argued that the economy could have recovered if the authorities remained committed to the programme, saying “if the ECF programme was implemented as agreed with the IMF, Malawi’s economy would have recovered just as we did in 2012 with Her Excellency Joyce Banda”.
He contended that Malawi “chose to dump the programme immediately after devaluation” and, therefore, could not expect to realise the intended benefits of the exchange rate adjustment.
Malawi Economic Justice Network executive director Bertha Phiri observed that Malawi mosty exports tobacco, tea and sugar whose prices are set globally and volumes fixed by weather plus quotas.
By December 2025, the dollar was trading around K4 000 on the parallel market— more than 100 percent above the official rate of K1 780. Meanwhile, gross reserves had fallen to 1.6 months of import cover.
