Malawi juggles tricky choices

The fuel crisis has affected all spheres of life just a month after government dramatically hiked petrol prices to K6 672 per litre and diesel to K6 687 per litre in line with the restoration of the automatic pricing mechanism (APM). Authorities blame the US-Israel-Iran war in the Middle East, where the fuel comes from and the depletion of the K1.1 trillion price stabilisation fund. What does the fuel price crisis mean for Malawians hit by a surge in transport fares, food costs and household expenses. Our Staff Reporter ALLAN NYASULU engages Economics Association of Malawi (Ecama) president Bertha Bangara Chikadza. Excerpts:

Q:  Has the return to the APM system made life easier for ordinary Malawians?

A:  The system helps to ensure that fuel prices reflect changes in global oil prices and the exchange rate, making them cost-reflective, which helps the Malawi Energy Regulatory Authority [Mera] not incur debts and losses. However, for ordinary Malawians, frequent price adjustments can make life more difficult because increases in fuel prices quickly translate into higher transport costs and rising prices of goods and services. Fuel prices have changed three times within six months, which is more than the number of times wages can increase in the same period for ordinary Malawians. While the APM is good in terms of government budget sustainability and fuel availability, it can create income pressure on households

Q: What are the major drivers of the fuel crisis witnessed in the past weeks?

A: Both foreign exchange shortages and global oil prices play an important role, but foreign exchange constraints have been a major contributing factor in Malawi. Fuel is imported and paid for in foreign currency. Malawi has had foreign exchange shortages for quite a long time. Following the geopolitical tensions in the Middle East that led to the closure of the Strait of Hormuz, where 20 percent of the global fuel passes through, there have been disruptions in the global fuel supply that may have also affected supply in Malawi. The scarcity of fuel against its demand, amidst the ongoing tensions, has led to increases in prices. Therefore, for Malawi, the fuel situation has mostly been driven by external pressures without ruling out domestic foreign exchange challenges.

Q: Following the disruption caused by the war in Iran, South Africa and Zambia have cut fuel taxes to cushion consumers. Why has Malawi not not done the same?

A: The government may be cautious about reducing fuel levies and taxes because these are an important source of revenue used to finance public services, including infrastructure. The government also indicated it is currently servicing a K1.2 trillion fuel debt from suppliers and the money is being generated from the levies. While reducing taxes can provide short-term relief to consumers, it may also widen the fiscal deficit due to reduced government revenue if alternative revenue sources are not identified.

Q: It is reported that Mera owes the price stabilisation fund about K1.1 trillion and may take up to four years to rebuild the fund.  Could this be a sign that the safety net has failed to protect Malawians from fluctuating fuel prices?

A: The fund was designed to act like a shock absorber. However, it is only useful when it is in surplus. With arrears reportedly around K1.1 trillion, the fund no longer has the capacity to cushion consumers or support importers when costs rise suddenly. That means the fund is not functioning as a safety net in the way people expect. However, this does not mean the idea of the fund has completely failed. There is a need to manage the fund more transparently, going forward, to ensure it achieves its intended objectives when the need arises.

Q: Fuel levies fund roads’ maintenance and rural electrification, but they also raise transport fares and food prices. Which should take priority right now?

A: Both priorities matter, but they affect people in different ways and on different timelines. Public projects such as roads and electrification are essential for long term development. They support trade, reduce transport costs, and help connect rural communities. Cutting levies too sharply could slow these projects and create financing gaps that are difficult to fill later. So development needs to be prioritised.

Q: What steps should government take to stabilise fuel supply within the next three months?

A: Achieving short-term stability is possible, but it requires deliberate efforts. The priority should be to prioritize foreign exchange for fuel imports. The next step is to address outstanding payments to suppliers; even making partial payments or restructuring these debts can help restore confidence and ensure timely deliveries.

Public trust tends to decline when shortages become frequent, and price fluctuations seem erratic. Past experiences during fuel crises demonstrate that confidence can quickly diminish when communication is unclear, and long queues become commonplace. However, confidence in government policy can be fostered through consistency and visible progress. When the public sees that challenges are recognised and actively addressed, trust can be maintained even during tough times.

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