Malawi will not abandon APM

Malawi’s Finance Minister Dr Ken Lipenga has assured the International Monetary Fund (IMF) that government will not abandon its recent economic reforms, especially the automatic price mechanism (APM) despite pressure from some quarters.

Two weeks ago, the Malawi Energy Regulatory Authority (Mera) raised fuel prices only to reverse the decision in less than 24 hours, forcing some market analysts to speculate that government has abandoned APM.

Both Economics Association of Malawi (Ecama) acting president Edward Chilima and Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira last week warned government against reversing the monetary and fiscal reforms.

But in a telephone interview with Business News from Tokyo, Japan on Friday, Lipenga said he assured both IMF director of the African Department Antoinette Sayeh and Department for International Development (DfID) Principal Secretary for the UK, Mark Lowcock, that Malawi will not move an inch from the reforms.

“It is not easy. Our people are feeling the pain resulting from these measures and we appeal to development partners to help us with resources to assure a greater degree of currency stability and mitigate the impact,” said Lipenga who is leading a Malawi delegation to an IMF and World Bank annual meeting in Japan.

APM is one of the crucial components of Malawi’s new programme with IMF, the extended credit facility (ECF).

“We know that reversing the measures would yield devastating results for the country,” said Lipenga.

The minister, however, said IMF is pleased with bold economic reforms Malawi has taken at the same time the Bretton Woods Institution acknowledged the pain people are experiencing in the wake of the economic measures.

“These reforms were taken to restore macroeconomic balance. They are a sensible response to a bad situation. Before the reforms, the economy was facing major challenges resulting from an over-valued exchange rate which benefited a very few people, but was extremely harmful to the majority of Malawians,” he said.

He said the reforms are in the interest of Malawians as they will result in economic growth and job creation for many people.

In an earlier interview with Business News, Chancellor College economics professor Ben Kalua said APM will mitigate losses that would have been incurred by importers.

Currently, pump price adjustments, according to the new pricing system, are a reflection of changes in the value of In Bond Landed Cost (IBLC) of petroleum products and movements of the kwacha against the dollar.

To minimise the impact of frequent fuel price fluctuations on the international market, the adopted pricing regime is operating within a specified threshold of five percent.

This means that any change in IBLC of more than five percent threshold will trigger a price adjustment. APM was introduced in 2000 and continues to be the main anchor behind fuel pricing in the country.

But on a number of occasions, previous government regimes have suspended 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. FCTC stated that governments should provide “technical and financial assistance to aid the economic transition of tobacco growers and workers whose livelihoods are seriously affected as a consequence of tobacco control programs.”

“Many governments and even the WHO have recognized that it is only by conducting thorough research, including field trials carried out with the tobacco growers, that complementary or alternative crops to tobacco can be successfully identified. They also recognize that this will take many years,” he says.

Abrunhosa called on countries such as Malawi not yet part to FCTC to join arguing that by being signatories to the convection and opposing the recommendations, the jobs and livelihoods of tobacco farmers and labourers can be saved.