IMF speaks on Reserve Bank of Malawi 5% inflation target

Post was last updated: January 16, 2020
NGWIRA —We can’t keep changing goal posts

International Monetary Fund (IMF) has said the Reserve Bank of Malawi (RBM)’s ambitious target of attaining five percent inflation by the first quarter of 2021 will depend on improved agricultural resilience.

This is coming at a time there is uncertainty on this year’s crop production owing to excess rains being received in some parts of the country coupled with fall armyworms and African armyworms that have affected some crop fields.

Ministry of Agriculture, Irrigation and Water Development recently indicated that the fall armyworms have destroyed 144,000 hectares of crops, affecting 467,000 farmers in all agricultural development divisions nationwide.

The figure is almost triple that of 2017, when President Peter Mutharika declared 20 out of the country’s 28 districts as disaster areas following a fall armyworm outbreak after 133,083 farmers were affected.

In an interview, IMF Resident Representative, Farayi Gwenhamo, said agricultural resilience would lower domestic food prices, lower international fuel prices and strengthened fiscal and monetary policy implementation.

“In recent years, weather shocks such as extreme droughts and floods have taken a huge toll on Malawi’s economic activity. Last year, Cyclone Idai affected agricultural activities especially in the south but good harvests in other parts of the country dampened the negative effect.

“Going forward, prioritisation and implementation of policies in Malawi’s National Resilience Strategy will be key in adapting and building resilience to climate change shocks,” Gwenhamo said.

In a separate interview, RBM spokesperson, Mbane Ngwira, said the target still remains and that most of the factors being considered to impact the economy were under review when the target was being set.

“We cannot keep changing goal posts, the 5 percent target is consistent with the regional convergence even our macroeconomic stability targets are covered. If you look at how we calculate inflation, we compare this year’s prices to those of the previous year and if 2019 maize prices were around K17, 000 a 50 kilogramme per bag you expect the prices to be around K30, 000 which is unlikely.

“The base effect could be an advantage to inflation because it will be not as high exceeding 2019 prices so food inflation could be low,” Ngwira said.

On strategies to contain unprecedented changes in other Macroeconomic factors such as fuel price increases, Ngwira said such will be tackled during the Monetary Policy Committee meeting scheduled for later this month.

Since 2017, Malawi’s inflation has remained in single digits but crawed back to a double digit band seen at 10.4 percent in November 2019.

Maize constitutes 45.2 percent in the Consumer Price Index an aggregate basket of goods and services for computing inflation.

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