Malawi’s inflation highest in Comesa

Post was last updated: December 7, 2016

Although statistics from the National Statistical Office (NSO) show headline inflation for the country easing in recent months, the story is different when the price of goods and services in Malawi is compared to other countries in the 26 member Common Market for Eastern and Southern Africa (Comesa).

NSO last reported headline inflation at 20.1 percent but figures from the Comesa Harmonised Consumer Price Index (HCPI-Comesa), which is used to measure inflation standings for countries that form part of the Comesa trading bloc, show Malawi with the highest inflation in the region recorded at 22.8 percent as of October, 2016.

HCPI-Comesa comprises of 12 divisions of expenditure which includes Food and non-alcoholic beverages, housing, electricity, water, education, communication, restaurants, hotels and miscellaneous good and services, among others.

With an inflation of 22.8 percent, Malawi is now topping countries where the price of goods and services increases at the fastest rate followed by Sudan at 20.9 percent.

Zimbabwe recorded the least annual inflation rate of -1.0 percent in October.

Since the start of the year, Malawi has been trailing Zambia to record the second highest inflation in the regional trading bloc but while Malawi’s misfortunes have escalated, Zambia has managed to bring down its inflation to 16.5 percent in October.

Consumer rights activist, John Kapito, said such reports are an indication that the Malawi economy is struggling and that the cost of living in Malawi is higher as compared to other Comesa member states.

Kapito worried that such figures paint a gloomy picture for the consumer as high inflation means disposable incomes are also being eroded.

“Under such circumstances, people will buy less and as a result industries will also shut down as they cannot produce at a profit,” he said.

But while this is happening, government went ahead with amendments to the Value Added Tax (VAT) Act consequently removing exemptions and zero rating on basic commodities such as bread, piped water, milk and laundry soap.

Governments commonly use zero-rating on goods to lower the tax burden on low-income households but Finance Minister, Goodall Gondwe, justified the changes on the basis that the measures will expand the tax base and restore the integrity of the tax system by removing distortions that favour some products against others.

But according to Kapito, such measures, while being punitive to consumers, are an indication that government is in a desperate situation to raise money by taxing essential services.

“Government is over borrowing from the market and has a huge debt that is why we see it introducing taxes that do not make sense,” he said.

In a separate interview, economic commentator, Nelson Mkandawire said the statistics are a clear indication that things are not working in Malawi.

He said commitment to fiscal discipline and a review of the food basket are key to the country achieving low digits on inflation.

“Fiscal discipline remains a challenge for central government and yet it is key to taming inflation in any country,” he said.

In his observations, Mkandawire also said unless authorities head calls to mechanise agriculture, it would be difficult for the country to bring down its inflation standings.

Mkandawire said: “Instead of making progress, what we hear are stories of tractors being bought which should have helped to revolutionalise the sector but sold under dubious circumstances.”

Mkandawire said it is likely that the situation will remain the same in the foreseeable future unless Malawi commits to address the issues that impact on inflation.

“We are failing because we have chosen to fail and we lack the will to deal with issues influencing high inflation,” he said.

Commenting earlier on Malawi inflation status, the Economics Association of Malawi (Ecama) also cautioned government to control its huge appetite for expenditure, ensure steady food supply and boost the export base to tame inflation figures to acceptable levels.

Ecama Executive Director, Edward Chilima, observed that

 

 

if there is no change in the way government is running the economy, then Malawi should not expect any change in the current status.

Said Chilima, “We need to start doing things right if we are to contain inflation figures and we have already spoken about what needs to be done only that what is lacking is implementation.

“We have talked about the greenbelt initiative as one of the programmes that can boost food supply, but we are not seeing much on the ground. If we continue as we are doing, then let us not expect any change in these statistics,” he observed.

Government initially projected a drop in annual average inflation to 16.5 percent by December, but according to Chilima, the target is unattainable in the current economic environment.

“We did not anticipate the drought, absence of donor support or even the unprecedented fall of the kwacha which have all had an impact on the economy and in turn inflation. I don’t expect us to achieve that target judging by how things are at the moment,” he said.

Earlier, Chancellor College Economics professor Ben Kalua told us that Malawi’s inflation figure will continue to stand out in Comesa on account of low food production. Kalua observed that most Malawians spend over 50 percent of their income on food.

He said this makes cost of living among the poor higher as compared to other countries with stronger economies. Kalua advised government to improve food supply by supplementing small holder production and engaging in commercial farming.

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