The International Monetary Fund (IMF) has warned that inflationary pressure could persist in the short to medium terms due to exogenous shocks and structural challenges Malawi has been subjected to lately.
In its Malawi Country Report issued recently, the Bretton Woods institution projects Malawi’s headline inflation to average 20.8 percent this year and 22.7 percent in 2023.
Comparatively, the Treasury projects annual average inflation to rise to around 21.5 percent from 9.3 percent registered in 2021. In 2023, according to government estimates, headline inflation is projected to stabilise at an average of 21.8 percent before it starts to decline thereafter.
The IMF says the inflation is projected to be on a downward path and is expected to go down to 6.8 percent in 2027.
“The decline in inflation in the medium term is expected as a result of the anticipated effects of monetary policy tightening and fiscal consolidation measures such as expenditure control and public debt management that are being undertaken by the government” the report reads.
Inflation has maintained an upward trajectory lately, as seen at 26.7 percent by October.
The rising inflation rate has been attributed to the slipover effects of the Covid pandemic and the Ukraine war, which affected global supply chains.
In trying to arrest the inflation, the Reserve Bank of Malawi adjusted upwards the policy rate twice to 18 percent this year alone.
Presenting the mid-year budget statement in Parliament, Minister of Finance Sosten Gwengwe said the government has taken steps to arrest rising inflation.
Gwengwe added that addressing supply constraints will help boost local production as a lasting solution to tame inflation, adding that, in the short term, expenditure management will be key.
“Government, therefore, intends to ensure that budget cuts are implemented in a manner that does not directly impact on the less privileged households or deter growth of the economy.
“Government will therefore maintain or increase the current levels of social benefits and ring-fence social spending budget lines amid rising budget pressures,” he said.
Inflation started getting out of hand in December this year when it hit double digits after a long time.
Due to elevated inflation, among other things, the government lowered its gross domestic product (GDP) growth projection for 2022 by 2.4 percentage points from 4.1 percent to 1.7 percent.
The outlook remains relatively higher than the 0.9 percent estimate made by the IMF in its recent World Economic Outlook Report.
But in 2023, the government projects 2.6 percent GDP growth.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.