The amount of foreign currency sent back to Malawi by Malawians living in the diaspora plummeted from $300 million in 2021 to $112.5 million last year, exacerbating the country’s foreign exchange challenges, according to the latest Malawi Economic Monitor by the World Bank.

At the same time, outflows reached $126.4 million, turning net remittances negative for the first time.

According to the World Bank, high transaction fees for inbound remittances and a significant premium between the official and parallel exchange rates discouraged inflows through official channels, thereby intensifying the forex crisis.

“Recent regulations have been introduced to further strengthen foreign exchange controls beyond existing export proceed surrender requirements, to include the mandatory conversion of foreign currency receipts.

“While these are intended to bolster official reserves, they could also have the unintended consequence of further increasing capital outflows, reducing liquidity in the formal foreign exchange market and discouraging private sector investment,” the bank states.

In recent years, Malawi has struggled with inflation, which, according to economic experts, erodes the value of remittances.

They argue that high inflation can reduce the purchasing power of the money sent by the diaspora, making it less effective in addressing the needs of recipients.

Similarly, as the Malawian Kwacha weakens against major currencies, the value of remittances drops when converted into local currency, leading to a decrease in the amount people choose to send.

In an interview Sunday, Scotland-based economist Velli Nyirongo said Malawi’s plummeting remittances have deepened the country’s forex crisis.

According to Nyirongo, high transaction fees for formal transfers, coupled with stringent exchange controls that yield unfavourable rates and delays, incentivise the use of informal channels.

“A lack of incentives for official transfers, global economic pressures on diaspora incomes and the allure of faster, albeit riskier, informal methods compound the problem.

“Broken promises regarding diaspora initiatives, such as proposed ‘diaspora cities’, have eroded trust in the government,” Nyirongo said.

He added that reversing this situation requires lowering transaction costs by fostering competition among money transfer operators and leveraging mobile money platforms.

“Crucially, simplifying exchange regulations and offering competitive rates are essential. Incentivising formal channels through tax breaks and innovative financial products, alongside strengthening financial infrastructure, is also vital,” Nyirongo said.

He further suggested that rebuilding diaspora trust through targeted campaigns and closer engagement, addressing macroeconomic instability via sound fiscal policy and export di