, it is not too late to get back on a positive trajectory. recent policy changes, including the 49 percent devaluation of the official malawi kwacha exchange rate against the us dollar, and the subsequent floatation of the kwacha exchange rate are some of the policies that are being put in place to create a better malawi. there will be short term costs, but the long - term gains more than compensate for the losses. ladies and gentlemen we made it clear at the onset that the adjustment we have taken will have a price that we all, malawians have to pay in order to have a long lasting solution. waiting any longer would have been worse. at the bank we do not envisage a reversal on the position that we have taken. the results in the short term have been exceptional. forex is now available ; the queues at the bank for forex and fuel have dissipated. tobacco prices are good and we anticipate a reversal in the tobacco production this coming season. there is an immediate pass - through to price increases and we anticipate the full effect of the devaluation in the next six months with inflation going up from the march level of 12 % to an average of 18. 4 % in 2012. however we anticipate an amelioration of inflation to average 16. 1 % in 2013 and returning to a single digit average in 2014. the most frequently asked question is : “ how will the reserve bank ensure sustainability of foreign exchange? ” i am proud to report that the bank has put tremendous efforts to address the supply side of foreign exchange. you may be aware that the bank has taken a lead in the export development fund ( edf ) initiative to promote exports in the country. consequently the government has developed the national export strategy ( nes ) to be implemented through participatory process to transform malawi from a predominantly importing and consuming nation to becoming a producing and exporting nation. the nes will prioritise bis central bankers ’ speeches investment incentives to develop productive capacity, encourage foreign and domestic investment and ultimately create sustainable export capacity. ladies and gentlemen you will agree with me that malawi has lagged behind its neighbours in the sub - saharan africa with its share of regional exports to the world declining sharply over time in terms of the business environment indicators such as transaction costs and infrastructure. adjusting the exchange rate regime was one of the measures to enhance malawi ’ s international competitiveness. the bank recognises that further steps still remain to be

, the decrease in inflation rate and a reduction in interest rates. the imf and world bank boards on 30th and 31st august 2006, respectively, approved that malawi had reached the hipc completion point after making satisfactory progress in implementing its poverty reduction strategy paper ( prsp ) for at least one year, and maintained satisfactory macroeconomic policies as evidenced by its performance under the prgf. furthermore, malawi also met all the completion point targets in the area of economic governance and public expenditure management, safety nets, and microfinance. apart from receiving hipc debt relief, malawi also qualified for the multilateral debt relief initiative ( mdri ) which cancelled all pre - 2004 debt to the world bank and african development bank, and pre2003 debt to the imf. in october 2006, paris club creditors also agreed to cancel almost 100 % of malawi ’ s debt owed to them. these developments, distinguished ladies and gentlemen, reduced malawi ’ s external debt from 142 % of gdp at the end of 2005 to 23 % of gdp at the end of 2006. other external debt indicators also improved significantly. distinguished ladies and gentlemen, let me now turn to the monetary policy stance that was pursued in 2006. monetary developments in 2006 were generally expansionary. the increase in money supply mainly arose from net foreign reserves on account of receipts for balance of payments support. the increase in money stock was also partly a reflection of an expansion in credit to the private sector. it should be noted that since march 2006, credit to the private sector has been increasing steadily, implying that the february 2006 reduction in the liquidity reserve requirement ( lrr ) was bearing fruit. this is in line with the economic program which allows for more credit to the private sector to boost economic growth. the bank rate was adjusted downwards from 25. 0 percent to 20. 0 percent on 13th november 2006. as a result, commercial banks followed suit by adjusting both their savings and deposit rates. the reduction in interest rates should, therefore, give an opportunity to the private sector to participate in borrowing capital, thereby generating economic growth. it is also pleasing to note that the rate of inflation has been declining since february 2006. by december 2006, the annual rate of inflation declined to 13. 6 % from 17. 1 % realised in 2005. this was mainly due to : • slowdown in food inflation as a result of a good crop. • relative stability of the malawi kwacha against other major currencies. • lagged effects of a decline