Ecama against monetary policy reversal

Malawi should not reverse the monetary and fiscal reforms effected recently because doing so could affect the country’s economic framework, the Economics Association of Malawi (Ecama) has said.

The Reserve Bank of Malawi (RBM), the custodian of monetary policy, effected a number of reforms such as the removal of foreign exchange controls, inflation targeting, devaluing the kwacha by nearly 50 percent and adopting a liberalised exchange rate regime resulting in the local unit further losing value and hiking the bank rate, now at 21 percent, twice since May.

RBM Governor Charles Chuka said last week that visible positive impact of the policies will be felt when the next tobacco selling season, which wires in 60 percent of foreign currency earnings and contributes 13 percent to the national economy, begins.

On the fiscal side, government has engaged in an austerity drive, increased fuel and electricity tariffs and subsequently adopted the automatic pricing mechanism (APM) of petroleum products considered necessary to reduce the burden of subsidies on the fiscal plan.

Abandoned APM

But last Wednesday’s move by the Malawi Energy Regulatory Authority (Mera) to reverse, within hours, the fuel price hike raised questions as to whether government had abandoned the APM.

No government official has come forth to explain whether APM has been abandoned.

The monetary and fiscal policies have received a bashing from other socio-economic commentators who argue that they have worsened Malawians’ misery characterised by rising commodity prices, widespread between the bank and lending rates, liquidity challenges in banks and the increase utility prices further eroding consumers’ purchasing power.

But Ecama acting president Edward Chilima, while acknowledging that Malawi is going through a ‘difficult path’ advised on Tuesday in Blantyre that there is no need to reverse the policies.

“The reforms were a difficult path we had to take if we were to survive. That is the medication the economy had to take. We are still going through a difficult time, but it is not advisable to reverse,” he said.

Chilima, however, said government has to find ways of mitigating the difficult times Malawians are enduring.

“The critical question we have to ask is; what next after what we have done?” he queried.

Chilima was speaking in the context of an annual conference the local economic think-tank has organised in Mangochi in early November themed ‘Discovering Pillars of Sustainable Economic Growth for Malawi’ whose guest of honour is President Joyce Banda.

‘Difficult path’

The conference is coming at a time Malawi’s economy is going through a difficult patch that will result in real gross domestic product (GDP) slowing to 1.6 percent from an earlier projection on 4.3 percent, according to RBM.

“We will have to map the way forward on some of the economic challenges the country is facing,” said Chilima.

European Union (EU) head of delegation to Malawi told Capital Radio last week that reversing the reforms is the same as telling a patient, who is on medication, to let-go the drugs.

He argued doing so could result in the patient developing resistance and that the drugs can no longer work again.

But Chuka last week admitted that high interest rates, high inflation rates, fiscal expenditure cuts have at all times in all the countries spelled doom for livelihoods, especially among the low-income earners.

He acknowledged that the policies have, in a way, reduced the purchasing power of people; hence, becoming difficult to maintain families.

But the governor argued that government has the moral duty to do something about those hard times.