Exchange Rate Policy and Devaluation in Malawi is popular PDF and ePub book, written by Karl Pauw in 2013-03-19, it is a fantastic choice for those who relish reading online the Social Science genre. Let's immerse ourselves in this engaging Social Science book by exploring the summary and details provided below. Remember, Exchange Rate Policy and Devaluation in Malawi can be Read Online from any device for your convenience.
Exchange Rate Policy and Devaluation in Malawi Book PDF Summary
The Malawian economy has in recent months been plagued by a severe foreign exchange crisis, fueled in part by a steadily rising import bill, sharp successive declines in tobacco export prices, the suspension of direct government budget support from several development partners in 2011, and an all-time low in international investor confidence. Up until the regime change in April 2012, the government resisted calls for a devaluation, which at the time resulted in a thriving parallel foreign exchange market. At its peak, the Malawi kwacha was trading at a premium of up to 100 percent in this secondary market. Economic theory shows that such a situation has adverse implications for an economy in terms of the balance-of-payments adjustment process and income distribution in the economy. Those with access to foreign exchange at the official rate are able to extract rents by selling foreign currency or imported goods at inflated prices. Imports sold domestically are then often valued at the parallel exchange rate rather than the official rate, with the parallel market rate serving as the only adjustment mechanism through which equilibrium can be restored in the balance of payments. This has a significant impact on domestic inflation to the detriment of consumers, while those with preferential access to foreign exchange at the official rate capture large rents. A simulation exercise using an economywide model for Malawi considers how the economy responds to different types of foreign exchange shocks under fixed and flexible exchange rate regimes. While the foreign exchange crisis in itself has severe negative implications for the economy, our results suggest that the economy responds much better to these types of shocks under a flexible exchange rate regime (that is, devaluations or a free-floating currency). Our main simulation shows that under the latter policy, gross domestic product growth, although negative, is 1.5 percentage points higher than under a fixed exchange rate policy. Similarly, poverty is 6.9 percentage points lower. A relaxation of the exchange rate policy, however, is only part of the solution; in the longer run, good governance and sound macroeconomic policy that is conducive to growth are needed to address the underlying structural problems in the economy that also contribute to foreign exchange shortages.
Detail Book of Exchange Rate Policy and Devaluation in Malawi PDF
- Author : Karl Pauw
- Release : 19 March 2013
- Publisher : Intl Food Policy Res Inst
- ISBN : 978186723xxxx
- Genre : Social Science
- Total Page : 36 pages
- Language : English
- PDF File Size : 11,9 Mb
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