Icam cools down hyperinflation fears
An assessment by the Institute of Chartered Accountants in Malawi (Icam) has concluded that the country is not in hyperinflation, hence, there is no need for use of International Accounting Reporting (IAS) 19.
The assessment comes months after some global accounting firm PWC and the International Monetary Fund (IMF’s) World Economic Outlook and the International Practices Task Force (IPTF) reports considered Malawi to be potentially hyperinflationary by December 31 2024.
The argument that Malawi’s economy will be potentially hyperinflationary for financial reporting purposes is based on a quantitative factor that suggests that Malawi’s three-year cumulative inflation will be 100 percent, or above, by the end of December 2024.
But in a statement, Icam argues that although the three-year cumulative inflation reached 109 percent in June 2024, the factors that determine a hyperinflationary country are not applicable now.
For instance, according to Icam, in a hyperinflationary country the population prefers to keep wealth in non-monetary assets or a relatively stable foreign currency and that the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency.
Reads the report signed by Icam president Moffat Ngalande: “There is no evidence to suggest that the general population keeps wealth in monetary assets denominated in a foreign currency other than Malawi kwacha.
“There is no evidence to confirm that amounts of local currency are immediately invested to maintain the purchasing power,”
He said after considering all that, “the institute would like to guide that, all factors considered, Malawi’s economic environment is not ‘hyperinflationary’ in terms of IAS 29, and that ‘hyperinflationary reporting’ prescribed by the standard is therefore ‘not applicable’.”
Ngalande has however said the institute will continue monitoring the situation going forward.
In a separate interview, Reserve Bank of Malawi spokesperson Mark Lungu said the bank was waiting for clarification from Icam and this serves as guidance to the industry which is commendable.
He said: “We can only appreciate that Icam has issued this statement which offers a clarification to the public to clear the misinterpretation that was there. We commend them for that.”
Meanwhile, finance expert at Malawi University of Science and Technology James Kamwachale Khomba agreed with Icam on the hyperinflation projections, saying the country is not yet there although the current inflation pressure is worrisome.
“The current situation is not close to hyperinflationary although the cumulative inflation figures are actually above 100 percent. But the current inflation figures are not looking good and there is a need to cool the rate down,” he said.
Inflation rate was recorded at 33.7 percent in July 2024 while food inflation is hovering at 41.9 percent.
