By Justin Mkweu & Chimwemwe Mangazi:
The country’s medium-term aspirations to achieve a 5 percent inflation rate seem farfetched as macroeconomic indicators and commentators point in the opposing direction.
Malawi, being a member of the Southern African Development Community (Sadc), has a target to attain 5 percent inflation rate in line with the block’s mandate of strengthening regional integration through macroeconomic convergence.
However, between August 2020, when Malawi was closer to the dream, to August 2023, the inflation rate has moved from 7.6 percent to 28.6 percent representing a 21-percentage point jump.
A country report by the Economic Intelligence Unit (EIU) further projects that inflation for Malawi will average 30.5 percent in 2023.
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A recent Malawi Economic Indicator Projection published by Bridgepath Capital Limited highlights that weather shocks, exchange rate depreciation and the Russia-Ukraine war have put pressure on both food and non-food inflation hence the trend.
This suffices economic doom for Malawi and vulnerability of biblical proportions for poor Malawians whose purchasing power continues to diminish.
Both the International Monetary Fund (IMF) and the EIU indicate that the situation may lessen from 2025 to 2027 due to better global and local economic performance.
“The EIU notes that if Malawi gets an IMF’s Extended Credit Facility (ECF) programme there will most likely be a pivot to a flexible exchange rate which may cause further currency depreciation. Therefore, although inflation will be declining, the currency depreciation is expected to keep inflation high,” the Bridgepath Capital Limited report reads.
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In an interview, Monday, economist Edward Chilima said the current inflation rate pressure will not cease in the short term until maize prices come down, which is unlikely until next growing season.
Chilima said the country can bank its hopes on the (ECF) which he believes will unlock potential for external financial assistance, and creation of some fiscal space saying in the meantime even cushion may not be possible.
“We simply have to adjust our lifestyles to face the reality. For the ultra-poor, government needs to intensify cash social transfer activities,” Chilima said.
Malawi Economic Justice Network Coordinator for the Southern Region Mike Banda said as long as the cost of maize keeps rising, the situation may not change for the better anytime soon.
He resounded calls for a full operationalisation of government’s plan to supply all Admarc depots with maize which may contain the ever-increasing cost of the commodity.
“This calls for a comprehensive social support programme to cushion the general citizenry through programmes such as the social cash transfer, popularly known as Mtukula pa Khomo. Such programmes ought to be scaled up and provision of maize to most vulnerable communities among others.
“The expectation is that during the midyear budget review coming ahead, there will be a lot of push and allocation of adequate resources towards social protection interventions to address the social and economic inequalities being perpetuated by the same,” Banda said.
Another economist Francis Chanthunya expressed worry indicating that it is likely that there is going to be acute food shortage in the coming months for a significant portion of the population due to low food production and depletion of stored grains as a result of the shock caused by cyclone Freddy earlier in the year.
“What has to happen to mitigate the problems is to find a way to address the supply chain disruptions, perhaps through multilateral trade agreements to lower the cost of imported foods on top of fiscal policies to reduce government spending especially on foreign non-essentials,” Chanthunya said.
Efforts by the Reserve Bank of Malawi (RBM) to arrest inflation through policy rate adjustments, now at 24 percent, have proved futile.
During the recent Monetary Policy Committee meeting, the Central Bank revised the annual average inflation rate to 29.5 percent from an initial projection of 18.2 percent at the beginning of the year.
Inflation has maintained an upward trajectory since 2020, causing havoc to other macroeconomic fundamentals in the economy.
