Malawi’s fuel import bill could rise by an equivalent of 2.2 percent of gross domestic product (GDP) if oil prices increase by 50 percent following disruptions in the Middle East due to the joint US-Israel war on Iran.
A United Nations Conference on Trade and Development (Unctad) analysis titled ‘Strait of Hormuz disruptions: The burden of oil price shocks on vulnerable economies,’ places Malawi among the least developed countries most exposed to oil price shocks.
The analysis found that 34.4 percent of the country’s oil imports are sourced from Gulf producers whose exports depend on the strategic waterway.
Based on Malawi’s GDP of about $10.9 billion (about K19 trillion), the projected increase is equivalent to roughly $240 million (about K420 billion) in additional fuel import costs.
This would push the country’s annual fuel import bill from about $700 million (about K1.2 trillion) to nearly $940 million (about K1.6 trillion) if the price shock is fully transmitted to import costs.
Reads the analysis in part: “Rising energy prices will translate into higher costs and difficult trade-offs between covering fuel bills and investing in essential public services.
“Without relief, these shocks will further entrench structural vulnerabilities.”
UN Secretary General António Guterres is quoted in the report as having observed that “when the Strait of Hormuz is strangled, the world’s poorest and most vulnerable cannot breathe”.
For Malawi, which already grapples with foreign exchange shortages and relies heavily on imported fuel, higher oil prices could increase transport and production costs, fuel inflation and place additional pressure on external balances.
The UN warned that Malawi risks reversing gains made towards taming inflation rate in the face of the escalating joint US-Israel war on Iran, which is driving up global oil prices and raising fuel supply risks.
In a brief published by the UN Resident Coordinator’s Office in Lilongwe, the UN said the shock could quickly hit through fuel, fertiliser and trade channels, thereby exposing structural weaknesses in an already fragile economy.
In an interview yesterday, economist Milward Tobias warned that rising oil prices could deepen pressure on the exchange rate and forex reserves.
“We need more forex to import the same fuel, which weakens the kwacha and raises import costs,” he said, adding that higher pump prices will ripple across transport, production and food prices.
Malawi enters the crisis with thin buffers as foreign exchange reserves stand at about 0.5 months of import cover, public debt hovering above 90 percent of GDP and full dependence on imported fuel and fertiliser.
Last month, Malawi Energy Regulatory Authority (Mera) ruled out the possibility of easing some levies and taxes in the fuel pump price build- up, which make up about 29 percent of the pump price.
Mera director of finance Zachariah Ng’oma told The Nation that about 60 percent of factors that influence fuel pricing, mainly landing costs, are beyond the regulator’s control while the remaining 40 percent comprises local levies and taxes.
He said the Price Stabilisation Fund, which cushions consumers from changes in variables that trigger fuel pump prices adjustments, remains depleted and in arrears.
