Economic experts warn of fuel price increases

Post was last updated: January 8, 2020

Malawians should brace for tough times ahead as the country’s economic think tanks predict an imminent rise in fuel prices in the near future.

This follows a spate of free rising global oil prices owing to the tension between the United States and Iran following the killing of an Iranian commander Qassem Soleimani last Friday.

In an interview, executive director of the economics association of Malawi (Ecama), Kettie Nyasulu, said fuel price increases are inevitable, Malawi being a small open economy that is affected by global oil trends.

“With the already unstable global economy stemming from the US, China trade war and now the US, Iran tension we should expect continued rise in oil prices on the global market because of the uncertainty that is there.

“There is not much that we can do to impact the global trends but the trends surely impact our economy, the only thing we can do is have a buffer of fuel that can help cushion the impact,” Nyasulu said.

She further said the country may have some gains especially on the exchange rate if the political tension will weaken the US dollar but may not be significant to influence the performance of the economy.

Concurring with Nyasulu, economics professor at chancellor, Ben Kalua, said the fact that Malawi uses the automatic fuel pricing mechanism means that it will be affected by any changes in the global prices.

“Any changes in the global price of oil automatically triggers that mechanism so right now, it’s on the line but I don’t think it has risen by five percent but if it continues rising, then it will trigger the five percent and go beyond and local fuel prices will certainly rise.

“There is nothing we can do. This is what we call an exogenous shock its beyond our control it’s actually beyond anybody’s control unless the situation is resolved politically,” Kalua said.

Economic expert, Sane Zuka, added global oil prices have already risen by about 2 percent for the first time in seven months and Malawi should certainly worry about such developments.

He, however, said the current global oil increase is a shock that Malawi can handle with the oil stabilising mechanism that was put in place.

“Should the conflict escalate, oil prices will drastically increase and this will be a very big shock to the economy. At present, the conflict is not yet contained, but there is hope that global leaders will address the situation. Further escalation is in no-one’s interest.

“These are things that Malawi cannot prevent but Malawi needs to be aware that such things do happen and should put in place measures to assist stabilise such shocks for a considerable amount of time. Even if the conflict does not escalate to a full blown war, such a conflict should take months to settle. The effects of this development need quick and fast decisions,” Zuka said.

Commenting on the development, spokesperson for the Malawi energy regulatory authority, Fitina Khonje, conceded that Malawi imports fuel and is affected by fluctuations in global prices However, the impact may not be as immediate since when we import it takes times for the fuel to arrive in the country and therefore, the price of fuel is informed by factors that are obtained in the previous month.

“You will also appreciate that price reviews are done once a month and not immediately when the fundamentals change. We continue to monitor what is happening on the international market. At the moment, the country has sufficient fuel stock. Where need be and where feasible, we can use the price stabilisation fund to an extent,” Khonje said.

Global Crude oil prices increased by 2 percent to inch closer to $71 a barrel on Monday. Oil futures climbed to $70.74 as traders weighed every aggressive comment from both US and Iran that kept pushing up probabilities of a wider conflict in the world’s largest oil producing and exporting region, and bolstering fears of a supply disruption.

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