Malawi has touted its automatic fuel pricing mechanism, saying it has helped government save public resources and create fiscal space for other development priorities.
Ministry of Finance, Economic Planning and Decentralisation director of fiscal decentralisation Rhino Mchenga told senior government officials and economists from East and Southern African countries in Windhoek, Namibia, that Malawi introduced the model in 2012 in response to mounting fiscal pressures and foreign exchange shortages that made fuel subsidies unsustainable.
He said the mechanism allows domestic fuel prices to adjust automatically in line with changes in international import costs, exchange rates and applicable levies, helping government avoid accumulating subsidy costs and limiting the risk of sudden price adjustments.
Mchenga said the shift resulted in higher fuel prices as government withdrew subsidies that had previously kept petroleum products affordable.
“Adopting the automatic pricing mechanism has helped Malawi save public resources and create fiscal space for other development priorities,” he said.
The conference, organised by the Southern African office and Eastern African Subregional office of the United Nations Economic Commission for Africa (Uneca), discussed ways of addressing widening economic inequalities, mounting fiscal pressures and renewed inflation risks threatening the region’s economic recovery.
Malawi has experienced recurring fuel shortages, mainly due to scarcity of foreign currency used to import fuel. Malawi is predominantly an importing country, and foreign currency generation has been a challenge, with tobacco—the main earner—being seasonal.
Besides Malawi, other countries in the region using the automatic pricing mechanism include Zambia, Namibia, Tanzania, Mozambique, Botswana and South Africa.
Under the arrangement, domestic pump prices are revised, either upward or downward, whenever there is a five percent change in international oil prices, exchange rate and freight charges. A Price Stabilisation Fund built into the pump price cushions importers from losses.
In his presentation, Uneca East African Subregional Office director Andrew Mold highlighted widening differences in economic performance across the continent, with countries recovering at different rates and facing varying exposure to global shocks.
He pointed to persistent gaps in performance and questioned whether African economies are converging or drifting further apart.
The presentation also highlighted growing risks from extreme weather, drought to flooding, while agricultural growth across Eastern African countries remains uneven and poorly synchronised.
Rising staple food prices and increasing food imports in countries such as Rwanda and Uganda are adding pressure to household budgets and external trade balances.
