Inflation is only a symptom
The International Monetary Fund (IMF) has advised the Malawi government to focus on taming the inflation rate, finding solutions to power outages and enhancing public service reforms to breathe life into the declining economy.
In an interview on Friday on the sidelines of the Economics Association of Malawi (Ecama) Annual Lakeshore Conference at Sunbird Nkopola in Mangochi, IMF Malawi resident representative Jack Ree said unless lasting solutions are found, Malawi’s economy will continue to face obstacles to growth.
He said: “There are three things that need to be done for Malawi to make a breakthrough. One is to bring down inflation; inflation is, in fact, a symptom and not a cause itself.
“A symptom of fiscal imbalance that we have been facing at the break of Cashgate and the pull out of donor support and slow growth of GDP [gross domestic product] and then the spending side which caused a lot of pressure in terms of domestic financing.”
Ree said in every country, inflation is responsive to policy actions, adding that as long as policy actions are credible and consistent, Malawi should be able to tame down inflation levels.
“We haven’t been doing the right things. In all countries, inflation is about what people believe the authorities would do,” he said.
Ree said having an independent central bank is key to dealing with inflation issues.
Malawi’s inflation rate—largely pushed by food which has a weight of 50.2 percent in the consumer price index (CPI)—has since 2012 been in double digit lane and is one of the highest in Southern Africa Development Community (Sadc) and Common Market for East and Central Africa (Comesa) trade blocs.
As of September 2016, the country’s inflation rate stood at 21.2 percent, down from 22.8 percent recorded the previous month, thanks to softening of food inflation.
Currently, Malawi is facing frequent and persistent power outages following Electricity Supply Corporation of Malawi’s (Escom) intensive load-shedding programme blamed on declining water levels in the Shire River, the main source of hydro power generation.
But Ree said there is need to do something on electricity, which will need both investments from the private and public sectors.
Reserve Bank of Malawi (RBM) governor Charles Chuka said in a monetary statement in August that the central bank will focus more on containing second round effects from food inflation to headline inflation.
To reign in expenditure, Minister of Finance, Economic Planning and Development Goodall Gondwe said government plans to cut about 30 percent of wasteful expenditure for economy to heal. n
