Depreciating currency threatens food security

The deteriorating macroeconomic situation in Malawi will have a negative impact on household food security, the latest Famine Early Warning Systems Network (FEWS NET) report has warned. The report noted that the local currency, the kwacha, depreciated at a faster rate in August than in previous months - by around 15 percent from July's levels. "The Malawi kwacha was trading at an average of about K105 per US $1 by the third week of August," the report said. "This depreciation may result in a hike in the price of inputs, which are already difficult for farmers to afford, thereby affecting food production next season." The resulting inflationary knock-on effect would have serious consequences for households wanting to source food on the local markets. "There is a lot of speculation on the domestic market, as the local currency depreciates further almost daily. Fuel prices have not gone up yet, but if they do, this development will have wide repercussions on commodity prices, including those of food. A rise in food prices will increase the risk of food shortage for a majority of the poor urban and rural market-dependent households," the report said. It added that "most rural poor households begin to run out of food from their own production around September/October in normal years, and depend on food purchases from the market for the rest of the season". "These households mainly depend on casual labour to earn money to buy food. The earnings from this activity tend to be low, making it difficult for the households to earn enough cash to buy adequate food, and any rise in food prices would just worsen their situation," FEWS NET cautioned. For most of July 2003, the Malawi kwacha fluctuated between K89 per US $1 and K93 US $1, "but since the beginning of August it started to lose value, reaching K105 per US $1 by the third week of August". This was contrary to expectations, as the local currency normally appreciates at this time, "coinciding with tobacco sales, the country's main foreign exchange earner". However, the depreciation of the kwacha was attributed to a "donors' squeeze" on foreign aid, resulting in a shortage of foreign exchange in the country. Up to 80 percent of Malawi's development budget is funded by donors. The International Monetary Fund is withholding US $47 million in budget support, in response to government overspending, while Western governments have also demanded greater transparency.