Economists, industry dissect policy stance
Economists and industry players have called for the need to match fiscal and monetary policies, observing that the two variables need to collaborate if the present monetary policy measures are to bear fruits.
They said this on Friday in Blantyre during the Monetary Policy Forum organised by the Reserve Bank of Malawi (RBM) to discuss the recent decisions of the Monetary Policy Committee on the policy rate hiked to 22 percent.
The analysts observed that when the central bank acts alone without the support of fiscal policy, the fight against inflation to achieve price stability will be impossible.
Malawi Confederation of Chambers of Commerce and Industry business environment and policy advocacy director Madalitso Kazembe said if government continues to spend outside the budget, taming inflation and creating a conducive business development environment will be a toll order.
She said: “Our concern that these actions do not speak to government actions which could then mean no impact on the intended objectives.
“Presently, government has a huge borrowing appetite because it has a huge fiscal deficit which needs to close using borrowing. This comes at a time government has accumulated a lot of debt which certainly is a disincentive to businesses.”
Economics Association of Malawi executive director Frank Chikuta while indicating that the stance taken by RBM was expected and necessary given inflation projections, without fiscal interventions they would be pointless.
He said: “This is an action which was expected because in an unstable macroeconomic environment, we need the environment to be stabilised first before sustainable production can be promoted.
“We, however, need to improve on coordination between monetary and the fiscal side of the economy because we see that while the monetary side is taking these decisive actions to tame inflation, the fiscal side is in a bad situation.”
Financial Market Dealers Association of Malawi secretary general James Mbingwa commended the efforts by MPC to curb inflation, saying the rising prices continue to affect the economy, including investors.
“We are, however, of the view that monetary policy interventions alone will not achieve optimum results. There is need for fiscal policy to complement monetary policy through fiscal discipline,” he said.
Mbingwa advised the central bank to ensure that it looks at other monetary policy tools other than the policy rate and liquidity reserve requirement (LLR) ratio when fighting inflation.
In his response, RBM economic policy and research department director Kisu Simwaka admitted that to effectively bring down inflation, it is important that both fiscal and monetary policy work together.
“From the monetary policy perspective, we believe we have made a right decision to raise the policy rate and the LRR. Our expectation is that government will spend within the budget so that we do not have excess expenditure that can bring in excess demand and drive up inflation,” he said.
The Malawi Government is currently grappling with high debt levels, with public debt hovering at K7.9 trillion as at December 2022 or 69.93 percent of GDP, causing the country to be in debt distress.
