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The current foreign currency shortage and the kwacha’s depreciation may leave the Petroleum Pricing Committee (PPC) with no choice but to raise pump prices when it next meets during the first week of April, officials have said.
The current forex shortage has forced major banks to suspend sales and left the local currency at the mercy of demand and supply forces.
Official import cover stands at 1.8 months resources which the Reserve Bank of Malawi (RBM) said are well below the three months minimum needed to keep the kwacha stable.
The kwacha has since torn through the central bank’s unofficial ceiling of about K110 to trade between K125 and K130 to the US dollar.
PPC chairman Chancellor Kaferapanjira said although the country managed to hold pump prices since October by cushioning hikes, the current forex situation has compounded the problem.
Petrol is now selling at K102.70, diesel at K95.40 and paraffin at K75.45.
“We managed to keep prices low since last October by compensating importers. We are now barely surviving. With the forex shortage and the kwacha’s depreciation, price increases cannot be ruled out,” he said.
PPC adopted an automatic pricing system for fuel which entails that prices be reviewed after any upward or downward changes beyond five percent in the kwacha exchange rate against the US dollar and fuel prices on the international markets.
Haulage rates also contribute to price changes.
Kaferapanjira, who is also chief executive of the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), hoped that tobacco brings enough dollars in time to prevent pump price hikes.
Consumers Association of Malawi executive director John Kapito and Society of Accounts in Malawi executive director Hennox Mazengera both said they expected fuel prices to go up.
“Fuel prices have been stable for several months because we have been cushioning increases. But I don’t think we have enough resources to offset losses from the kwacha’s depreciation. We can’t run away from increases any more,” said Kapito.
Kapito, who is also a member of the PPC, said commodity prices will rise even higher since most of the goods are imported. Government also expects to import staple food crop maize to fill a yet to be estimated deficit.
Consumers, who Kapito said have been paying 18 percent more for goods since January when the kwacha was stable, should brace for harder times ahead now that the local currency has lost its 18 months stability against the green buck.
On his part, Mazengera said since depreciation could raise prices of goods and services, high inflation will characterise the 2005/6 budget.
But he said tobacco farmers are likely to benefit from the weakening kwacha since they will get more of the local currency and pay less towards the last quarter when importing farm inputs as the kwacha will be stronger with available dollars.
MCCCI economist Sadwick Ntonakutha said the fall of the kwacha will affect both local manufacturers and importers who will produce and import at higher prices respectively.
“If you produce expensively, even for exports, competitiveness is affected. It is even worse in Malawi because most companies have to import raw materials and even spare-parts,” he said.
Kaferapanjira agreed with Ntonakutha, saying most manufacturers he met in Lilongwe this week said they may fail to pay their foreign suppliers following rapid value loss of the kwacha.
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