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.
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.