Tough times for Malawi

The tough times for Malawians after the kwacha was devalued by 49 percent on Monday are finally here. The announcement made on Friday of the rise in fuel prices is expected to trigger a reciprocal upward movement in the prices of other basic commodities.

Petrol is now selling at K490 from K380, representing a 29 percent increase. Diesel is selling at K475 from K360 representing a 31 percent surge while paraffin has been pegged at K171 for domestic use and K388 for industrial use from K171, translating to 126 percent increase.

Electricity tariffs have also gone up from an average of K9.83 per kilowatt hour to K16.06 per kilowatt hour, representing 63.3 percent increase. Liquefied petroleum gas has also been adjusted from K819.08 to K1298.50 per kilogramme, representing 59 percent increase.

Malawi Energy Regulatory Authority (Mera) announced the adjustments on Friday and based the increases on the recent devaluation of the kwacha, which is now at K250 to one US dollar.

“Since the last pump price revision of 8th November, 2011, the FOB prices on the international market have continued to increase at an average of 6 percent per month. Additionally, the 8th November, 2011 fuel price review was based on an exchange rate of USD1=K166.3428.

“Following the 7th May, 2012 devaluation of the kwacha to USD1=K252.500, the monthly fuel import bill has increased to levels that the price stabilisation fund is no longer able to fully cushion,” reads Mera’s statement signed by chairperson Lyton Zinyemba.

The statement says following the devaluation, the electricity supply company liabilities from importation of materials and loan service obligations increased and are impacting on its cashflow and liquidity position.

Mera said adjustments have come to cover the rising costs of importation for petroleum products and rising production costs for electricity to ensure continuity in the delivery of energy services.

RBM benchmark interest rate up

The Reserve Bank also raised its benchmark interest rate to 16 percent from 13 percent on Friday to combat an expected acceleration in inflation following this week’s sharp currency devaluation.

“This adjustment is part of the measures aimed at strengthening monetary policy in the context of a liberalised exchange rate and is in line with the recent trends in non-food inflation,” Governor Charles Chuka said in a statement.

Friday’s rate increase is the first adjustment since August 2010 when the central bank cut it to 13 percent from 15 percent.

At the time, inflation averaged seven percent, owing to a surplus harvest of maize, and an artificially strong kwacha that kept prices stable.

Chancellor College economics lecturer, Professor Ben Kalua, said the increase in prices of fuel and electricity tariffs without responsive income will be bad news because prices of commodities and transportation will go up.

He said the increase of the bank rate by three percent from the Reserve Bank of Malawi means that commercial banks will also be forced to increase the lending rate.

“All this stimulates production but if the income is not responsive or is static and prices go up, things do not move. All that is bad news. This means that the value of the kwacha is going very down,” said Kalua.

Minibus fares to go up

Minibus Owners Association of Malawi (Moam) was meeting on Friday to discuss new fares. But Moam secretary Coxley Kamange said there was no need to panic because the fares would be increased by between K20 and K30 depending on the routes.

Road Transport Operators Association (RTOA) executive director Shadreck Matsimbe said the fuel increase will also compel transporters to adjust their rates.

“Fuel increase beyond five to 10 percent affects our costs. We are yet to examine the magnitude of the changes but obviously transporters will adjust their rates because other things like tyres and others will also be affected,” said Matsimbe.