Mera cautious on global oil price decline impact

Malawi Energy Regulatory Authority (Mera) says although a decline in global oil prices is good news, its trickle-down effect largely dwells on whether the economy can hold some of its macroeconomic fundamentals.

Mera chief executive officer Collins Magalasi said in an interview on Tuesday that global decline in oil prices could potentially ease consumers’ burden, but other factors, including exchange and inflation rate and freight prices could as well affect potential gains the economy could accrue from the price decline.

Will Malawi benefit from global oil price drop

He said: “For us, we take this as good news and we have used the same in our projections. We anticipate all things being equal that this could translate into an ease in pressure on prices.

“If the macroeconomic fundamentals continue the way they are now, and we continue to have lower oil prices and stable freight prices, next year could be a better year for pricing.”

In its October 2019 Commodity Market Outlook report, the World Bank projects that crude oil prices will average $60 per barrel in 2019 and weaken to $58 per barrel in 2020.

These forecasts are $6 per barrel and $7 per barrel lower than anticipated in the April Commodity Markets Outlook. 

The bank said in line with the slowdown in global growth, oil consumption is now expected to rise at a much slower pace than earlier projected and increase only modestly next year with a sharper-than expected economic downturn posing the greatest risk to the oil price forecast.

Reserve Bank of Malawi (RBM) maintains that with inflation rate remaining in single digit, 9.3 percent in the third quarter of 2019, and a firm exchange rate, currently trading at around K740 per dollar, the positive macroeconomic outlook remains firm.

Non-food inflation, on the other hand, has remained remarkably low as it declined further to an average of 5.4 percent in the third quarter of 2019 from 5.5 percent in the previous quarter due to stability in the exchange rate.

Energy expert Grain Malunga said with the way things are, there will be no potential risks on local fuel prices as they will go down, which is good for the consumers.

“Most economies are performing below forecasted levels due to low demand in goods and services,” he said.

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