Malawians should brace for tougher times ahead following the Malawi Energy Regulatory Authority (Mera)’s decision to raise fuel prices by an average of 34 percent, which took effect at midnight.
The fuel price adjustment has seen the cost of a litre of petrol jumping by 44.92 percent from K1,380 to K1,999, about $2 per litre. A litre of diesel is now selling at K1,920 from K1,470, representing a 30.61 percent hike.
The price of paraffin has surged from K956 per litre to K1,236 per litre.
Mera Chief Executive Officer Henry Kachaje attributed the hike to a rise in Free On Board (FOB) price and movements in the exchange rate.
According to Kachaje, the FOB price has surged by 13 percent while that of diesel and paraffin has gone up by about five percent.
On the other hand, Kachaje said the 25 percent devaluation of the Kwacha had a significant impact on the pricing.
He said the resultant effect of the summation of FOB prices and exchange rate movements resulted in the landed cost of fuel surging in the country.
Kachaje said the Price Stabilisation Fund, which is used to cushion fuel prices, had been depleted and that Mera had accumulated arrears amounting to about K77 billion to pay suppliers because of lower prices that prevailed in Malawi.
Malawi University of Business and Applied Sciences Associate Professor of Economics, Betchani Tchereni, said the magnitude of the fuel price increment will spell disaster for average and low earning Malawians.
Tchereni said the hike is likely to induce even higher inflationary pressures, which could even pile pressure on interest rates.
“Such a magnitude will render many economic activities to be reset kaye [for the time being], really. It’s going to lead to very high inflationary environment.
“The macro-economic environment is going to be unpalatable. Attracting investors is going to be hard,” Tchereni said.
Centre for Research and Consultancy Director Milward Tobias echoed the sentiments.
“It [the hike] will fuel further inflation, which already has been on an upward spiral. People’s income will buy less goods than it has been buying.
“Households should guard against spending in these economically difficult times,” Tobias said.
Consumers Association of Malawi Executive Director John Kapito said elevated fuel prices, especially those of diesel and petrol, will eat into whatever was left of the economy.
Kapito said the fuel price hike will trigger huge price increases on the market while having the potential to stifle industry operations.
He said the fuel price hike is also likely to push many workers into unemployment.
“Despite the huge devaluation of the Kwacha, we have observed that the Kwacha is depreciating daily and, yet, there is no IMF [International Monetary Fund] assistance. Was it necessary to devalue [the Kwacha] and create these unavoidable challenges? This simply shows the immaturity of our leadership.
“There is a lack of understanding by our leaders of the economic decisions that they make. I am very concerned with the many poor consumers that can no longer have a meal in a day. Our leaders are well cushioned as their salaries are well insulated to cushion them from any price adjustment but they can’t eat their obscene salaries while the majority are suffering like this,” Kapito said.