A local economist has described as ambitious the single digit inflation target by the end of this year as envisioned by the International Monetary Fund (IMF).
The IMF in a press statement issued after the completion of the third and fourth reviews of the Extended Credit Facility (ECF) last week urged authorities to continue with a tight monetary policy and fiscal restraint to stabilise the exchange rate and achieve a single digit inflation by the end of 2014.
Alex Nkosi, social conditions research programme officer for Centre for Social Concern (CfSC) argued yesterday that the pursuance of that target could lead to higher interest rates.
He said the target is “too ambitious” bearing in mind that this is an election year where both government and political parties will raise their expenditures.
This, Nkosi argued, will increase money supply which will consequently push up inflation
He feared that the proposal by the IMF to authorities to uphold tight monetary policies may trigger a rise in interest rates which will negatively affect the common person and businesses.
“I wonder how the single digit inflation will be achieved. The IMF always sticks to policies although they did not work previously. These policies have always led to more pain with the common person facing the blunt,” said Nkosi.
In their end of year assessment of the economy, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) noted that inflation is likely to be out of control this year when cashgate money starts vote buying.
The Reserve Bank of Malawi (RBM) has been implementing a tight monetary policy since May 2012 including raising the bank rate, increasing the Liquidity Reserve Requirement (LRR) and mopping up excess liquidity to rein in inflation, a move that has led to an increase in interest rates.
Regardless of the tight monetary policy, inflation stood at 22.9 percent in November 2013, according to the National Statistical Office (NSO), way off government target after peaking at 37.9 percent in February.
Government expected that inflation would slow down to 14.2 percent by December 2013 and to seven percent by December 2014, arguing the economy was recovering.
However, the IMF has noted that authorities are committed to closely monitor expenditure execution and financing to prevent a recurrence of the fiscal slippage that resulted in a substantial increase in domestic borrowing during the first quarter (Q1) of the 2013/14 fiscal year.
The IMF also noted that Malawi’s macroeconomic performance under the ECF remained broadly satisfactory and the policy reforms initiated in May 2012 are showing positive results, but worried that cashgate and aid freeze has negatively affected the macroeconomic outlook.