Institute of Chartered Accountants in Malawi (Icam) and EY Global Limited, a consulting, assurance, tax and transaction services firm, have differed on the possibility of Malawi to be in hyperinflation by the end of this year.
In its analysis for October 2024 on hyperinflationary economies, United Kingdom-based EY Global Limited indicated that Malawi should be considered hyperinflationary as at December 31 2024 after observing that its three-year inflation will be above 100 percent by end of this year.
Reads the report in part: “The International Monetary Fund World Economic Outlook reported a three-year cumulative rate of inflation of 88 percent as of December 2023 and forecast three-year cumulative rates of inflation of 106 percent and 80 percent for 2024 and 2025, respectively.
“The National Statistical Office [NSO] reported three-year and 12-month cumulative rates of inflation of 116 percent and 34 percent, respectively, as of September 2024. We believe that Malawi must be considered hyperinflationary as at December 2024.”
Apart from Malawi, other countries believed to be hyperinflationary include Lebanon, Iran, Haiti, Ghana and Argentina while Ethiopia, according to EY global, is no longer hyperinflationary.
EY Global Limited said economies such as Angola, Burundi, Egypt and Nigeria are not currently considered hyperinflationary, but entities ought to continue to monitor the situation and be prepared to apply International Accounting Standards (IAS) 29 if the assessment were to change.
But Icam president Daniel Jere said in a statement that although the country’s cumulative three- year inflation surpassed 100 percent by September this year, other critical factors suggest Malawi is not hyperinflationary.
He said in hyperinflationary terms, the population prefers to keep its wealth in non-monetary assets or a relatively stable foreign currency while the general population regards monetary amounts not in terms of the local currency, but in terms of a relatively stable foreign currency, which is not the case in Malawi.
Said Jere: “The institute hereby guides that Malawi is not operating in a hyperinflationary economy given that the other four factors are not pointing as such.
“All accountants in business and in practice are, therefore, required not to apply the requirements of IAS 29 to their 2024 annual financial statements. The institute will continue to monitor the economic situation in the country and advise all the stakeholders accordingly.”
Finance expert Brian Kampanje, in an interview yesterday, said that Malawi should indeed be in hyperinflation only that authorities downplay it out of fear that applying IAS 29 which would result in most Malawians feeling the pain.
“Applying substance over legal form, Malawi is already an hyperinflationary economy if the tenets of IAS 29 are to go by,” he said.
In May this year, projections by PwC, an auditing and advisory firm, indicated that the country will slip into hyperinflation mode this year.
Reads the PwC analysis in part: “Entities with the currency of Malawi as their functional currency should start applying IAS 29 for reporting periods ending on or after 31 December 2024.”
“Entities should consider any significant events or conditions that might contradict the conclusion that Malawi is hyper-inflationary between now and the end of 2024.”
Malawi’s year-on-year inflation rate for September was recorded at 34.3 percent, one of the highest in 11 years.
