Malawi Kwacha Research Articles

How Did Covid-19 Affect the Structural Relationship between Exchange Rates and Money Supply? Evidence from Malawi

For countries that participate in international trade, exchange rate management is crucial as the exchange rate affects the competitiveness of the country in international trade. This affects the country’s balance of payments (BOP) position and economic growth. This paper, therefore, set out to find out how Covid-19 containment measures have affected the Malawi Kwacha-US Dollar exchange rate, as well as money supply. Previous studies have assessed the short-term impacts of Covid-19 on the Malawian economy in general, without considering how they have affected the exchange rate and money supply. This study adds to the literature by analyzing how the Covid-19 containment measures have affected the exchange rate, and consequently, the money supply in Malawi. The study employs the dummy variables approach and the vector error correction (VEC) model to find out if there is a structural change in the exchange rate regression over time and whether that structural change in the exchange rates affects the money supply. Regression results indicate that there is a structural break in the regression over time and that the Malawi Kwacha appreciated following the breakout of the pandemic. Additionally, the results from the Error Correction Model have indicated that the appreciation of the Malawi Kwacha, positively, affected the money supply in Malawi. As a policy implication arising from this study, policymakers are encouraged to take advantage of the prevailing donor goodwill and ensure that the various donations received are put to good use so that the Malawi Kwacha should continue being relatively strong against the United States Dollar. If this is not done, the Malawi Kwacha could, greatly, depreciate, a thing that can make the economy experience inflation thereby making people experience a lot of hardships caused by the Covid-19 pandemic.

Cost Efficiency of the Banking Industry in Malawi

Sustainable economic growth requires efficiency in the banking sector because of the vital role financial markets play in allocating resources. This study seeks to contribute to the discourse on banks' cost-efficiency performance in the context of market upheavals, evolving customer preferences, and industry and institutional reforms. The study examines the Malawi banking sector's cost-efficiency based on firm-level data from 2010 to 2019. The period coincided with significant developments in the sector namely: 1) the massive local currency (Malawi Kwacha) devaluation which impacted exchange rates against major trading currencies; 2) the adoption of International Financial Reporting Standard (IFRS) 9 that impacted credit risk measurement; 3) the adoption of Basel 2 framework that impacted the calculation of capital adequacy and; 4) mergers and acquisitions of banking institutions. Using single-stage translog Stochastic Frontier Analysis (SFA) applied to a cost function involving nine banks, the study finds that Malawi banks are on average, 8.5% cost-inefficient. Over the sample period, the results further indicate an upward trajectory for the sector’s mean cost efficiency levels. Across the banks, varied cost efficiency scores affirm the underpinnings of managerial and behavioural theories of the firm in supplementing the neoclassical microeconomic view of efficiency performance of the banking firm. Cost-efficiency scores have been positively influenced by the macroeconomic environment (inflation) and elements of bank heterogeneity (asset concentration and bank size). The contributions of other elements, namely, market concentration and funding risk (liquidity risk) have been negative, suggesting these as policy intervention areas for cost efficiency in the sector.

Assessing the costs and efficiency of HIV testing and treatment services in rural Malawi: implications for future \u201ctest and start\u201d strategies

BackgroundReaching the 90–90-90 targets requires efficient resource use to deliver HIV testing and treatment services. We investigated the costs and efficiency of HIV services in relation to HIV testing yield in rural Karonga District, Malawi.MethodsCosts of HIV services were measured over 12 months to September 2017 in five health facilities, drawing on recognised health costing principles. Financial and economic costs were collected in Malawi Kwacha and United States Dollars (US$). Costs were calculated using a provider perspective to estimate average annual costs (2017 US$) per HIV testing episode, per HIV-positive case diagnosed, and per patient-year on antiretroviral therapy (ART), by facility. Costs were assessed in relation to scale of operation and facility-level annual HIV positivity rate. A one-way sensitivity analysis was undertaken to understand how staffing levels and the HIV positivity rate affected HIV testing costs.ResultsHIV testing episodes per day and per full-time equivalent HIV health worker averaged 3.3 (range 2.0 to 5.7). The HIV positivity rate averaged 2.4% (range 1.9 to 3.7%). The average cost per testing episode was US$2.85 (range US$1.95 to US$8.55), and the average cost per HIV diagnosis was US$116.35 (range US$77.42 to US$234.11), with the highest costs found in facilities with the lowest daily number of tests and lowest HIV yield respectively. The mean facility-level cost per patient-year on ART was approximately US$100 (range US$90.67 to US$115.42). ART drugs were the largest cost component averaging 71% (range 55 to 76%). The cost per patient-year of viral load tests averaged US$4.50 (range US$0.52 to US$7.00) with cost variation reflecting differences in the tests to ART patient ratio across facilities.ConclusionGreater efficiencies in HIV service delivery are possible in Karonga through increasing daily testing episodes among existing health workers or allocating health workers to tasks in addition to testing. Costs per diagnosis will increase as yields decline, and therefore, encouraging targeted testing strategies that increase yield will be more efficient. Given the contribution of drug costs to per patient-year treatment costs, it is critical to preserve the life-span of first-line ART regimens, underlining the need for continuing adherence support and regular viral load monitoring.

English

Maize (Zea mays L.) is a staple food crop in Malawi, with average yields of 1.8 -2.2 t ha-1 compared to potential yields of 5 to 10 t ha-1. In some areas, soil acidity is a serious constraint in crop production. The current recommendation is to apply 2.0 t ha-1 of lime as pre-plant broadcast and incorporated into soils with pHW < 5.5. A pilot study was conducted during 2015/2016 season at Bunda Campus (14° 35 S’;  33° 50 E’) to evaluate the response of reduced lime application rates of 0, 100, 250 and 500 kg ha-1 applied by  point placement or dollop method (mirodosing) in comparison to recommendation pre-plant broadcast application. A uniform fertilizer application of 69:23:0+4S was made on all plots. Gross Margin (GM) analysis, Value Cost Ratio (VCR) and Benefit-Cost Ratio (BCR) were undertaken. A gross Margin analysis was done using prevailing input/out values of 2019 at exchange rate of Malawi Kwacha, MK 745 = 1USD. Results showed that the ‘no lime’ control (4.01 t ha-1) gave the lowest grain yield and was significantly (P<0.05) out-yielded by the rest of the treatments. The highest yield of 5.75 t ha-1 was observed from the 500 kg ha-1 application, while the recommended control of 2t/ha yielded 4.90 t ha-1. The BCR was >1.0 for all treatments at two price scenarios of US$0.201 kg-1 and US$0.268 kg-1 grain, but >2.0 only for 100, 250 and 500 kg ha-1 lime application rates. VCR ranged from 4.4 to 10.4, except for 2 t ha-1 treatment which had 0.78 and 1.05 at US$0.201 and US$0.268 kg-1 grain price, respectively.  The results demonstrated that there is potential in reduced lime application rates to increase yield of maize by microdosing of agricultural lime. This study has provided a solid basis for wider evaluation of the concepts for subsequent rolling out to famers. Key words: Dolomitic lime, soil acidity, microdose applications, aglime profitability. &nbsp

Interfaces Between Road Infrastructure and Poverty in Africa: The Case of Malawi, 1994-2013

Critical assessment on the correlation between public investment on road infrastructure and poverty was carried out, and therefore this research paper provides an in depth analyses of the linkage between road infrastructure and poverty, as well as, other relevant macro-economic variables used in the Malawi Growth and Development Strategy (MGDS) as target indicators. Using primary and secondary data from 1994-2013, dynamic time series models were applied in elaborating the various factors with thrust on road infrastructure that may influence poverty in Malawi. Noting poverty reduction as priority of Malawi Government’s development agenda since the early 1990s, MGDS provides the country’s socioeconomic growth and development platforms. According to the latest 2010 Integrated Household Survey (IHS3), the majority of Malawians (50.7 percent) are languishing in abysmal poverty; this level is remotely far from the MDGS target of 27 percent by end 2015. The country has a high inequality index (Gini 0.38) reflecting profound inequalities in access to assets, services and opportunities across the population. The distribution of the benefits of economic growth is also important for the alleviation of poverty. However, the distribution of income and wealth are highly skewed, with a majority of the population living in a state of absolute poverty. Based on NSO surveys (1998-2010), the poorest 20 percent of the population control only around 10 percent of national consumption implying inequality is not decreasing at all for long time. Hosts of factors explaining why poverty level continues to be rampant are: share of agricultural as a percent of GDP (proxy to agricultural production) and export as percent of GDP (proxy to exports). However, this paper findings show that there is significant (p=0.000<0.05) relationship between road network and poverty levels. Estimates from Granger Causality analysis indicate that for one percent increase in road network, a reduction of 7.2 percent in poverty level is perhaps achievable. Average inflation rate over the last 20 years stands at 22.41 percent, and this has an immense impact on poverty level since it dramatically reduces the purchasing power of the majority of the population. For a one percent increase in the inflation rate, there is a consequence of about 3.7 percent increase in the average poverty level. Average Gross Domestic Product (GDP) growth rate is 4.7 percent annually with a minimum of -4.9 percent and a maximum of 10.2 percent in the last 20 years. Poverty level appears to significantly respond to (GDP). There is a 4.27 percent reduction in poverty level if a one percent GDP increment takes place as shown in the dynamic time series analysis. In fact, the declining of agricultural production for export and the growing gap in balance of payment (average Malawi Kwacha -498.92 billion or approximately US$-1.1 billion) would immensely influence GDP negatively and therefore poverty becomes abysmal as GDP growth plummets. In a nutshell, the findings confirm that in the long run economic growth is the key to alleviation of extreme poverty since it creates the resources to raise incomes. Given the importance of agriculture in contributing towards GDP in Malawi, the positive impact that this sector has on poverty is evident. For agriculture to meaningfully impact economic growth, road infrastructure plays a great role. Other pro-poor variables such as development roads and other investment on infrastructure are vital for economic growth and hence poverty alleviation.

Livelihoods and Welfare Impacts of Forest Comanagement

Comanagement programmes are gaining popularity among governments as one way of improving rural livelihoods. However, evidence of their effects on the livelihoods and welfare remains unclear. We used the sustainable livelihoods framework and stated preference techniques to assess the livelihoods and welfare impacts of forest comanagement on 213 households in Zomba and Ntchisi districts. The results show that approximately 63% of respondents perceive that, overall, comanagement has had no impact on their livelihoods. However, the programme is enhancing financial capital by introducing externally subsidised income generating activities and human and social capital among some community members through training programmes. A majority of households (80%) are willing to pay annual membership fees to participate in the programme (mean = 812 Malawi Kwacha), because of perceived potential future benefits. Education, gender of the household head, a positive perception of current livelihoods benefits, and a position on the committee increase household willingness to pay membership fees. However, the positive willingness to pay despite the negative perception of overall livelihoods impacts may also demonstrate the weaknesses of relying on stated preference surveys alone in estimating welfare effects.

Exchange Rate Policy and Devaluation in Malawi

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 economy-wide 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.

Testing the PPP hypothesis in bilateral real exchange rates of the Malawi kwacha

This article establishes that the bilateral Real Exchange Rates (RERs) of the Malawi kwacha mostly follow a nonlinear trend-stationary process in line with the Purchasing Power Parity (PPP) hypothesis. The argument that the PPP hypothesis may be enhanced by the geographical proximity of countries is partially supported.

The Efficacy of Official Intervention in the Foreign Exchange Market in Malawi

Abstract: This paper analyses the effectiveness of foreign exchange market interventions by the Reserve Bank of Malawi (RBM). We use a GARCH (1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi kwacha. Results from the GARCH model indicate that net sales of US dollars by the RBM depreciate, rather than appreciate, the kwacha. Empirically, this implies the RBM ‘leans against the wind’, that is, the RBM intervenes to reduce, but not reverse, exchange rate depreciation. On the other hand, results for the GARCH model for the post-2003 period indicate the RBM intervention in the market stabilizes the kwacha. In general, results for the entire study period show that the RBM interventions have been associated with increased exchange rate volatility, with the only exception being the post-2003 period. The implication of this finding is that intervention can only have a temporary influence on the exchange rate.

DYNAMIC EFFECTS OF MONETARY POLICY SHOCKS IN MALAWI

AbstractThis paper sets out to investigate the process through which monetary policy affects economic activity in Malawi. Using innovation accounting in a structural vector autoregressive model, it is established that monetary authorities in Malawi employ hybrid operating procedures and pursue both price stability and high growth and employment objectives. Two operating targets of monetary policy are identified, viz., bank rate and reserve money, and it is demonstrated that the former is a more effective measure of monetary policy than the latter. The study also illustrates that bank lending, exchange rates and aggregate money supply contain important additional information in the transmission process of monetary policy shocks in Malawi. Furthermore, it is shown that the floatation of the Malawi Kwacha in February 1994 had considerable effects on the country's monetary transmission process. In the post‐1994 period, the role of exchange rates became more conspicuous than before although its impact was weakened, and the importance of aggregate money supply and bank lending in transmitting monetary policy impulses was enhanced. Overall, the monetary transmission process evolved from a weak, blurred process to a somewhat strong, less ambiguous mechanism.

Official intervention in the foreign exchange market in Malawi: Evidence from GARCH and equilibrium exchange rate methods

This paper analyses the effectiveness of foreign exchange market interventions by the Reserve Bank of Malawi (RBM). The study uses a GARCH (1,1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi Kwacha. The study also run an equilibrium exchange rate model and uses the equilibrium exchange rate criterion to compare results with those from GARCH model. Results from the GARCH model indicate that net sales of US dollars by the Reserve Bank of Malawi depreciate, rather than appreciate, the Kwacha. Empirically, this implies the RBM ‘leans against the wind,’ that is, the RBM intervenes to reduce, but not reverse, exchange rate depreciation. On the other hand, results for the GARCH model for the post-2003 period indicate the RBM intervention in the market stabilizes the Kwacha. In general, results from both GARCH and real equilibrium exchange rate criterion for the entire study period show that the Reserve Bank of Malawi interventions have been associated with increased exchange rate volatility, with the only exception being the post-2003 period. The implication of this finding is that intervention can only have a temporary influence on the exchange rate. Key words: Foreign exchange market, official intervention, GARCH, equilibrium exchange rate

The efficacy of foreign exchange market intervention in Malawi

The Malawi Kwacha was floated in February 1994. Since then, the Reserve Bank of Malawi has periodically intervened in the foreign exchange market. This paper analyses the effectiveness of foreign exchange market interventions carried out by the Reserve Bank of Malawi. We use a GARCH (1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi kwacha. Using monthly exchange rates and official intervention data from January 2002 to February 2006, the empirical results suggest that intervention activities of the Reserve Bank of Malawi affect the kwacha. In line with similar findings elsewhere in the literature, the paper finds that net sales of dollars by the Reserve Bank of Malawi depreciate, rather than appreciate, the kwacha. This effect is very small, however. Moreover, the paper also finds that the Reserve Bank of Malawi intervention reduces the volatility of the kwacha. This shows that the Reserve Bank actually achieves its objective of smoothing out fluctuations of the kwacha. This can be evidenced by the stability of the kwacha during a greater part of 2004. Thus intervention is, to some extent, used as an effective tool for moderating fluctuations of the kwacha. However, its effectiveness is constrained by the amounts of foreign exchange reserves, which are usually low.

Acceptance of Anti-Retroviral Therapy among Patients Infected with HIV and Tuberculosis in Rural Malawi Is Low and Associated with Cost of Transport

BackgroundA study was conducted among newly registered HIV-positive tuberculosis (TB) patients systematically offered anti-retroviral treatment (ART) in a district hospital in rural Malawi in order to a) determine the acceptance of ART b) conduct a geographic mapping of those placed on ART and c) examine the association between “cost of transport” and ART acceptance.Methodology/Principal FindingsA retrospective cross-sectional analysis was performed on routine program data for the period of February 2003 to July 2004. Standardized registers and patient cards were used to gather data. The place of residence was used to determine road distances to the Thyolo district hospital. Cost of transport from different parts of the district was based on the known cost for public transport to the road-stop closest to the patient's residence. Of 1,290 newly registered TB patients, 1,003(78%) underwent HIV-testing of whom 770 (77%) were HIV-positive. 742 of these individuals (pulmonary TB = 607; extra-pulmonary TB = 135) were considered eligible for ART of whom only 101(13.6%) accepted ART. Cost of transport to the hospital ART site was significantly associated with ART acceptance and there was a linear trend in association between cost and ART acceptance (X2 for trend = 25.4, P<0.001). Individuals who had to pay 50 Malawi Kwacha (1 United States Dollar = 100 Malawi Kwacha, MW) or less for a one-way trip to the Thyolo hospital were four times more likely to accept ART than those who had to pay over 100 MW (Adjusted Odds ratio = 4.0, 95% confidence interval: 2.0–8.1, P<0.001).Conclusions/SignificanceART acceptance among TB patients in a rural district in Malawi is low and associated with cost of transport to the centralized hospital based ART site. Decentralizing the ART offer from the hospital to health centers that are closer to home communities would be an essential step towards reducing the overall cost and burden of travel.

Monetary Model of Exchange Rate: Empirical Evidence from Malawi

In this paper, we examine the monetary model of the Malawi Kwacha - U.S. dollar exchange rate during the current floating exchange rate system by applying several recent developments in the econometrics of unit roots and cointegration. Several interesting and important results are found. A single cointegration equation is identified whose coefficients conform to the restriction implied by the monetary model. The short run equation indicates the following results: First, the domestic interest rate has a negative sign, which indicates that increases in the domestic interest rate lead to an appreciation of the Malawi Kwacha. Domestic money supply has a positive sign, which implies that reductions in domestic money supply lead to an appreciation of the Malawi Kwacha. These results have led to the following conclusions. First, we have demonstrated through the use of Johansen's multivariate cointegration technique that an unrestricted monetary model does provide a valid explanation of the long-run nominal Malawi Kwacha - US dollar exchange rate, thus lending support to the interpretation of the model as describing a long run equilibrium relationship. Second, money supply can be employed as a tool to influence the exchange rate. This arises because a reduction in the nominal money supply through open market operations raises domestic rate of interest rate for given money demand in the short run. The increase in domestic interest rate results in an incipient short-term capital inflow. This causes the exchange rate to appreciate. Finally, the correct sign and significance of the foreign country interest rate signify the role of currency market liberalization and it is a justification of our choice of RSA as Malawi's major trading partner in our model.

An econometric model of the Malawian economy

This paper has estimated a small-open economy macroeconomic model for Malawi. The structure of the model consists of production, expenditure, government, monetary, employment sectors and prices. The estimated parameters of the long run version of the model were used to perform simulation experiments to determine the model's tracking performance of the historical data and to assess the effects of changes in selected exogenous variables on key macroeconomic variables. The dynamic simulation results indicate that a sustained devaluation of the Malawi kwacha improves the real trade balance, but leads to higher inflation and reduces real GDP growth. Bond-financed increases in government consumption expenditures are less inflationary, lead to higher real GDP growth, but worsen the real trade balance position. The short run version of the model was estimated using the cointegration estimation technique.

Modelling the economics of animal health control programs using dynamic programming

A new application of an optimization tool, dynamic programming (DP), is described to model the economics of animal health control programs. To demonstrate the value of this technique, a model is applied to determine optimal net benefits of controlling East Coast fever (ECF) in Malawi Zebu cattle in the Lilongwe plateau. The objective function was the present value of net benefits due to treatment, defined as mortality savings minus treatment costs. Mortality savings were based on decreased mortality from ECF following treatment. Model constraints included herd size, animal (herd) nutritional requirements, and program budget. Treatment options were tank dipping in acaricide, and vaccination. Secondary data from a dipping trial of 1800 Malawi Zebu cattle conducted from 1991 to 1994 were used to determine probabilities of mortality. Total optimal net benefits of long-term treatment (25 years, i = 10%) from vaccination (Malawi Kwacha (MK) 21 069) exceeded benefits for treatment with chlorfenvinphos acaricide (MK15 203).