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Treasury cautious on policy stance

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Leslie Fatch

Minister of Finance and Economic Affairs Sosten Gwengwe has said the government will continue with prudent expenditure towards taming inflation.

Gwengwe said this when presenting the Mid-year Budget Statement in Parliament on Friday.

He said the Treasury has paid attention to tame rising headline inflation, which rocketed to 26.7 percent by October.

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Gwengwe said, coupled with monetary policy positions like increasing the policy rate to 18 percent, the government is working towards containing the pressure.

He, however, conceded that in the interim, such options would have a negative bearing on the citizens.

“Government is cognizant of the fact that fiscal space tightening, if not well managed, can further dampen prospects for Malawi’s economic growth and hurt low-income households.

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“Government therefore intends to ensure that budget cuts are implemented in a manner that does not directly impact the less privileged households or deter growth of the economy,” he said.

Inflation has been rising at a fast pace, causing the government to revise the target to 21.5 percent from the initial 9.1 percent but fears linger that the rate will continue rising.

In a bid to tame it, the government has, this year alone, adjusted upwards the policy rate twice to make borrowing expensive and reduce people’s demand for goods and services.

Financial Market Dealers Association of Malawi President Leslie Fatch said the government should exercise caution.

“The challenge is that if we pursue that line so much without taking into account the welfare of citizens, interest rate increases become detrimental,” he said.

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