Malawi is expected to continue benefiting from tumbling global crude oil price in 2016 as the situation will likely result into stability and possibly subsequent reduction in the local pump prices.
Department of Energy Affairs spokesperson Joseph Kalowekamo expressed the optimism in an interview yesterday when asked to react to a latest Commodity Markets Outlook released by World Bank yesterday in Washington DC, United States of America (USA).
According to the outlook, 2016 forecast for crude oil prices is now revised downwards to $37 (K26 640) per barrel from $51 (K36 720) per barrel.
The lower forecast, according to the global multilateral lender, reflects a number of supply and demand factors including sooner than anticipated resumption of exports by the Islamic Republic of Iran, greater resilience in USA production due to cost cuts and efficiency gains, a mild winter in the Northern Hemisphere and weak growth prospects in major emerging market economies.
Kalowekamo described the revision as good news, saying there is a huge likelihood that Malawi will benefit from global price drop.
“The reduction in the international oil prices will result in stabilisation of fuel prices or even a reduction in fuel prices in the country if the other determining factors also become favourable,” he said.
In Malawi, one of the major determining factors for fuel prices is international oil prices, the value of the kwacha against the dollar and road freight.
Although the country benefited from falling global oil prices last year, the impact was partially offset by exchange rate weakness which has fallen to K750 to a dollar in some foreign exchange bureaus.
Last year alone, Malawi Energy Regulatory Authority (Mera) revised fuel pump prices four times with the latest adjustment effective December 5 2015 which saw petrol prices dropping from K856.70 to K711.90, diesel from K865.90 to K732.70 and paraffin from K756.10 to K573.10. On average, fuel prices went down by 19 percent.
In a separate interview yesterday, Catholic University head of economics Gilbert Kachamba said with the revised forecast in the global oil prices, there are likely to be small benefits to the domestic economy particularly in terms of lower rate of inflation and increased economic growth.
But he said with the transportation component constituting only a small proportion of 6.6 percent of Consumer Price Index (CPI), the expectation is that lower oil prices may not directly translate into a significant decline in the rate of headline inflation.
An assessment of the pass-through effect resulting from the decline in the price of oil by the World Bank team between January 2014 and February 2015 showed a coefficient of 0.46 which implied that around 46 percent of the global price change was transferred to consumers in the Malawian economy through changes in domestic pump prices. n