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Malawi inflation rate remains high, says IMF

The International Monetary Fund (IMF) has reiterated that Malawi’s rate of inflation remains high, urging authorities to tighten further both monetary and fiscal policies.

“We hope inflation is going to be brought down by further tightening monetary policy by raising interest rates so that Malawians can once again have confidence in the kwacha,” said Oral Williams, IMF mission chief to Malawi, in an interview in Lilongwe.

Cost of living has gone up in Malawi
Cost of living has gone up in Malawi
Malawi’s headline inflation rate has been on the upward spiral in recent months, driven largely by increasing food prices due to the commencement of the lean season, the depreciation of the kwacha and the recent adjustment of fuel prices.

Now, inflation—the rate at which prices of goods and services change in an economy— stands at 23.7 percent as of November, 2014, according to National Statistical Office (NSO), a 0.4 percentage point increase from the month before.

Williams, who led the IMF team which visited the country between December 10 and 17 2014, described inflation as a worst tax on the poor and those people with fixed income.

He said if inflation is brought down, it could ease some of the pain and poverty that the vulnerable groups in society are currently experiencing.

According to Williams, when the IMF team was in the country, they discussed with authorities how the 2014/15 budget can be adequately financed in the next six months before the next fiscal year commences.

“We also discussed how monetary policy can support fiscal policy in the next six months,” said Williams.

He said if the budget would be financed “in a reasonable way,” the situation would put less pressure on domestic financing.

Malawi’s development partners are still withholding budget aid, which prompted the Peter Mutharika administration to implement a zero aid budget for the 2014/15 fiscal year.

Williams also called for need to reprioritise spending so that the fiscal plan is financed in a sustainable way without accumulating arrears.

Last week, Blantyre-based investment advisory firm Nico Asset Managers, cautioned that increasing inflation rates will lead to increasing prices of goods and services, leaving less disposable incomes for both companies and households.

Reserve Bank of Malawi (RBM) expects inflation to hit 25.4 percent in December 2014 before declining to 15.6 percent in 2015 due to prudent monetary policies and increases in agricultural production.

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3 Comments

  1. This picture summarises the state of the economy! After 50 years please study the picture closely! Not only do we see the state of economic stagnation/dilapidation but more importantly the lack of means of production for Malawi. Manual handling. Hhow efficient can these hard working people be? Malawi needs transformation; industrial revolution to ease pain on our people lifting heavy duty things by hand, Malawi needs industrial revolution to bring about new materials in the picture such as metals, plastics and ceramics. Malawi needs modern manufacturing industries to boost production, provide jobs, improve productivity and balance the economy. Then see the inflation come tumbling down. How? I will be simple. MV = PQ. The structure of the Malawi economy means on the right hand, Quantity of total production, Q is constant. On the left hand velocity of money V can be assumed constant. Now listen! The govt and RBM are busy manufacturing money, M due to many reasons. For example, Malawi has significant influx of ‘unproductive’ foreign money ($). NGO aid money. Any budget support foreign money. Currency devaluations etc all these have the effect of increasing M on the left. How does the right hand respond? A 20% growth in M on the left must be counter balanced by a 20% increase on the right. Since Q is constant, the price of goods, P must absorb the 20% increase which is what inflation is! Inflation of over 20% in the 21st century, friends, is laughable and sad!! It means RBM is not employing modern monetary management instruments and tools. Ministry of Finance is not adopting sound fiscal policy policing of the govt. Industrial revolution will boost Q by over 1000% to absorb and dwarf variations on the left. Stop using ‘high interest rates’ as a primary instrument/tool for combating inflation. High interest rates throttle private investment in productive industries to grow the national aggregate output, Q. In the West high interest rates affect Consumption and Investment. For Malawi where Consumption is negligible, Investment is what the country needs to boost Q. In that regard low interest rates will stimulate private sector investment. Do not listen to theory this is practical advice! This is not a tribal issue. Villagers have nothing to do with this. This conundrum needs science! RBM set inflation target at 2% and cut interest rates from 25 % to below10 % for long term prosperity of the Malawi nation. Govt through Ministry of Finance stop importing luxury goods that fuel currency depreciation. Ho Ho Merry Xmas!!!

  2. Malawi Gov needs to change their objectives: Why borrow to build stadiums, hotels, when we can borrow to build fertiliser factories, power stations etc. We need to wean ourselves from silly imports, to manufacturing equipment. Raise import duties on all these silly imports, an remove all duties and taxes on manufacturing equipment, so that we can raise our production to enable us substitute imports for local products, and produce for export. We can substitute fuel imports with ethanol production and jatropha, we substitute fertiliser imports with locally made imports, and we can promote the manufacture of medicines locally and thereby reduce our import bill by ove 70%. We can increase local production in sugar and ethanol to create employment and produce for export. Zina zonsezi ndi mbola

    1. Good points. If you can see these things so clearly, why is the Govt so misguided? Who are these economic policy advisers to the Govt that are pushing for grand projects while the basics are all wrong?
      Let me comment on the subject matter of your proposition because it is important that we share some truth values. The thrust of what you have outlined is broadly speaking right. It is termed in Development Economics theory ‘Import Substitution’. In my world that is good up to a point. It is like a football team playing defensive football. The team must also score goals at some point to win matches and that is by pursuing ‘export led growth’. The simple industries approach you have outlined can help and must be encouraged but the context of it is that Malawi is only taking baby steps to address the economic predicament Malawi faces. There is one big piece missing in most African economies and the Malawi economy in particular that can unlocks economic boom- the big secret! Malawi can follow the simple manufacturing industries most Malawian Economists suggest and the economy will never ‘take-off’ in the next 50 years! The solution to that will never be acquired by assembling a ‘counsel of elders’ or just common sense suggestions. The ultimate solution must be based on Scientific Breakthrough solution that is not known by every man and his dog on the street. It is privilege knowledge that the Govt of Malawi must seek !!!

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