The Lilongwe-based Centre for Social Concern (CfSC) has said it is alarmed by the rate at which fuel prices are increasing in Malawi in recent times.
According to the faith-based institution, there is an apparent lack of policy intervention to cushion the poor households from the likely adverse effects of such fuel price volatilities.
Under the current fuel pricing regime, fuel pump prices are being adjusted to reflect fuel price movements on the international market to allow fuel importing companies recover importation costs on real time basis.
The pricing system is also linking pump prices to procurement costs and exchange rate movements with a plus-minus five percent of trigger band.
In its January Basic Needs Basket, the institution’s Social Conditions Research Program Officer Alex Nkosi says it is an established tenet that the rise in the pump price of fuel results in an increase in the general cost of living.
“According to the International Monetary Fund (IMF), rising food and fuel prices both have adverse effects on poverty, however, for the direct poverty impact, the main concerns typically relate to the higher cost of food especially for the urban poor,” he said.
Nkosi said poor consumers are negatively affected by high and volatile prices which also affect producers and other value chain stakeholders.
He said in Malawi, smallholder producers have not benefited from high prices because output price increases are rarely transmitted to the farm level, while increases in input prices are passed on fully and quickly.
“Thus, it is evident that the increasing prices for fuel and food products present a difficult policy challenge for Malawi government and does merit policy redress. CfSC believes that addressing the issue of volatile and high oil prices calls for a holistic approach, both the short- and long-term dimensions of the likely economic and social impacts must be addressed,” added Nkosi.
He said CfSC is aware that fuel in Malawi is saddled with a number of levies and suggested that reducing these levies can lead to domestic fuel prices increasing by less than world prices.
Nkosi, however, commended government for moving towards rehabilitating fuel storage facilities at Chipoka in Salima and in Mchinji and called for the need to increase the capacity of storage facilities by constructing more storage facilities.
The Malawi Energy Regulatory Authority (Mera) has repeatedly argued in the media that the adoption of an Automatic Pricing Mechanism (APM) in 2012 will help mitigate the accumulation of losses incurred by fuel importers.
APM was originally introduced in the year 2000 and continues to be the main anchor behind fuel pricing in the country.
But on a number of occasions, previous government regimes have been suspending the principles of automatic pricing and opted to manage the price structure in a way that minimises the impact of fuel price increase in the economy.