Corporate finance and advisory services firm, Alliance Capital Limited, has advised the Malawi government to consider removing import duty on maize and its substitutes as one way of taming runaway inflation in the country.
The development comes at a time when Malawi is in the middle of one of its worst food crises which has left Malawi relying on grain from across the borders, especially Zambia and Mozambique.
Currently, maize is selling at an average of K300 per kg or K15,000 per 50kg bag in most produce markets across the country.
The elevated maize prices have mounted pressure on the country’s headline inflation which was recorded at 24.9 percent in December 2015.
In its January 2016 economic review report, Alliance Capital says with the scarcity of maize characterizing the nation and bearing in mind that the consumer price index is heavy over food, it recommends temporary removal of import duty on maize and its substitutes so as to ease pressures on price to the end users.
The firm further says it expects domestic borrowing to remain heavy following Malawi Revenue Authority’s missed revenue targets in recent months, which has compounded the budget deficit.
The increased domestic borrowing, according to Alliance Capital, is expected to keep interest rates high.
Finance Minister, Goodall Gondwe, told Times Television last week that government has greatly slowed down on domestic borrowing from the rate of K50 billion in the last financial year to around K6 billion in December 2015.
Gondwe said Capital Hill intends to completely halt domestic borrowing by June this year.
On the country’s foreign exchange position, Alliance Capital says it expects economic agents to adjust their expectations over foreign exchange following recent assuring statements by the Reserve Bank of Malawi and the Ministry of Finance and Economic Planning.
ACL says the positive outlook may slow down the pace of decline on the local unit.