There is a familiar comfort in believing that some prices can be held down by good intentions alone. For nearly two years, fuel prices in Malawi appeared to prove that point. Pump prices barely moved, even as global oil costs rose and the kwacha weakened.
The recent fuel hike showed the limits of that belief.
An average increase of 41.6 percent, coming just four months after a 33 percent jump in October, pushed fuel prices close to double their levels of two years ago. What looks like a sudden shock is, in truth, a delayed correction. The cost was always there. It was simply not being paid at the pump.
Fuel pricing in Malawi is meant to follow an automatic pricing mechanism, introduced in 2012. Its purpose is straightforward: adjust prices gradually as import costs and exchange rates change, rather than allowing distortions to build up. When that mechanism works, price changes are smaller, more predictable and easier for households and businesses to absorb.
That mechanism was effectively set aside. Prices were held artificially low under a fixed regime, even as the cost of importing fuel climbed well beyond what pump prices could recover. For a while, the policy felt protective, but in reality it only pushed the burden elsewhere.
Markets, however, are patient only up to a point.
As Malawi Energy Regulatory Authority acknowledged, the fixed pricing approach proved commercially unsustainable. Fuel importers incurred losses. Supplies became strained. Levies meant to support roads and rural electrification went unpaid. The system continued to function, but on borrowed time.
The scale of that borrowing is now clearer. IMF data showed that as of last year, Mera owed fuel importers close to K950 billion through the Price Stabilisation Fund, which is now depleted. At the same time, roughly K450 billion in fuel-related levies remains unpaid to government.
What was the cost to the local economy? Road maintenance, rural electrification and strategic fuel reserves that depend of those levies were heavily affected. Infrastructure is quietly deteriorating and some development projects have been postponed.
Holding fuel prices low did not eliminate costs. It merely redirected them into arrears and stalled projects.
There is another uncomfortable detail. Studies by the World Bank have shown that fuel subsidies are highly regressive. The richest households consume most of the fuel. This means that while the policy was framed as protecting ordinary Malawians, a large share of the benefit flowed to those already better off, while the bill accumulated for everyone.
Artificially low prices also created regional distortions. Malawi’s fuel became cheaper than that of its neighbours, encouraging smuggling and cross-border purchases. Foreign exchange pressures intensified, further weakening the economy. What looked like stability at the pump was instability elsewhere.
None of this lessens the hardship now facing households and firms. Fuel prices nearing K5 000 per litre will ripple through transport costs, food prices and electricity generation.
People will have to spend more to get the same products that they were getting last week. Businesses will adjust prices or cut back operations. In an economy already struggling with high inflation and public debt approaching 90 percent of GDP, the timing could hardly be worse.
Business leaders and economists are right to call for balance. The automatic pricing mechanism is necessary to ensure fuel availability and limit fiscal losses, but it must be accompanied by measures that cushion vulnerable households.
Gradual, predictable adjustments are easier to absorb over the long-term.
As Malawians have realised, price controls do not make fuel cheaper. They make shortages, arrears and future adjustments more painful. When prices are suppressed for too long, the correction becomes unavoidable—and brutal.
A more honest approach accepts market-based pricing while using targeted social protection to support those least able to cope. If households need help, assist them directly. Do not undermine the system that supplies fuel to the entire economy.
