Economist tips government on sustaining low inflation

An economist at the pan-African policy think-tank African Institute for Development Policy (Afidep) Salim Mapila has urged government to be cautious in its financial dealings ahead of the 2019 Tripartite Elections, if the country is to sustain the current inflation gains.

In an interview with Business News last week, Mapila said with the economy characterised by a fiscally dominant regime as opposed to a monetary dominant regime, government’s financial dealings has a greater bearing on Reserve Bank of Malawi (RBM)’s ability to keep macroeconomic variables like inflation in check.

“That being said, we should be cautious not to underestimate shocks emanating from the government’s financial dealings and the build-up to the upcoming general elections. So we should not be overly confident in the ability of these mitigating measures to keep the inflation rate stable.

“A more holistic approach that leverages from good coordination between fiscal and monetary policy should be maintained if we are to meet projected targets,” he said.

RBM projects an inflation average of 10.5 percent in 2018, and expects to close the year at 9.5 percent despite the upside risks emanating from delayed fiscal adjustment in the lead-up to elections in 2019, and an upward adjustment in utility tariffs.

The country’s annual rate of inflation has been falling steadily since June 2016 helped by declining food prices, a relatively stable kwacha and lower international fuel prices. Currently, February inflation stands at 7.8 percent.

RBM Governor Dalitso Kabambe earlier said the monetary policy stance during the first half of 2018 will focus on entrenching disinflation and attaining the targeted 5 percent inflation in the medium term, and maintain a minimum of three months import cover of official foreign exchange reserves.

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