The International Monetary Fund (IMF) is advocating what it calls smart fiscal policy in countries grappling with heightened inflationary pressure to help restore price stability and lessen the impact of the cost-of-living crisis.
The view is contained on the fund’s blog based on the IMF April 2023 Fiscal Monitor titled ‘Inflation and Disinflation: What Role for Fiscal Policy?’
It comes as Malawi is categorised among low-income countries facing huge economic challenges and financing needs, coupled with continued rise in commodity prices.
“High inflation can impose serious and lasting costs on the economy and people. But the distributive effects of inflation—the way it transfers money from some individuals to others—are complex.
“To respond effectively to the sharpest upsurge in inflation in three decades and to address the damage done to households, policymakers should have a better understanding of how inflation affects various segments of society in different places,” the IMF says.
Malawi’s headline inflation—the rate at which commodity prices change at a given period in an economy—maintained an upward trajectory in February 2023, reaching 26.7 percent, figures from the National Statistical Office show.
This is a 0.8 percentage point increase from 25.9 percent registered in the previous month, when the inflationary trajectory took a new twist, having eased, albeit marginally, in December 2022 to 25.8 percent.
Headline inflation remained on an upward spiral for the greater part of 2022 as commodity prices continued rising, piling pressure on the economy.
But, in its Monetary Policy Committee (MPC) report published on Monday, the Reserve Bank of Malawi said it expects average headline inflation to slow down to 18.2 percent this year from 21 percent recorded in 2021.
RBM anticipates subdued imported inflationary pressures on account of declining fuel and non-fuel global commodity prices.
However, the central bank remained cautious, saying the outlook remains mixed as an elevated inflation risk is still imminent due to structural challenges, among other things.
Local economist Gilbert Kachamba Thursday said addressing bottlenecks would require systematic policy interventions.
“There is a need for the Malawi Government to deliberately increase spending on the sectors that have the potential to increase employment levels and induce economic growth.
“There is also a need to come up with deliberate policies that will increase disposable income of people to induce demand,” he said.
