December 19, 2011

Urban poor hit by slew of price increases

Devaluation, fuel shortages and economic mismanagement have conspired to push staple food prices to “alarming levels” in urban areas of Malawi, where even catching a bus to work has become an unaffordable luxury for many, according to residents and analysts. Since Malawi started experiencing severe shortages of fuel and foreign exchange currency earlier in 2011, soap, beans, dry fish, bread, sugar and cooking oil have become luxuries for many families, and even affording maize, Malawi’s staple food, has become a struggle.

The Famine Early Warning Systems Network (FEWSNET), which monitors trends in staple food prices in countries vulnerable to food insecurity, noted that in southern Malawi, maize prices rose by 22 percent in September and a further 15 percent in October. According to a cost-of-living survey released every month by local NGO the Centre for Social Concern (CFSC), the price of maize increased by an average of 11.7 percent during October in the country's four main urban centres Mzuzu, Lilongwe, Blantyre and Zomba.

"The fact that the staple food is recording alarming price increase is indicative of hard times ahead," noted CFSC's researchers. "It is a wake-up call to government and other stakeholders... to monitor the situation closely for timely interventions as the upcoming lean season might be more than what the country might have known in previous years."

In an attempt to address Malawi's thriving black market trade in US dollars, which has contributed to the crippling shortage of foreign exchange, the kwacha was devalued by 10 percent in August, but according to the CFSC, income levels have remained stagnant and the cost of goods and services has continued to climb. Collen Kaluwa, an economics professor at the University of Malawi, said the country's economic crisis had stretched the resources of Malawi's city dwellers to breaking point. “The shortage of fuel has caused hiccups in transportation, making commodities expensive. Forex shortages mean that manufacturing companies are not able to source sufficient inputs for production, hence we are bound to have shortages of commodities in shops and this is also pushing prices up,” he explained.

Concerns over poor governance and economic mismanagement by President Bingu wa Mutharika’s administration have seen international donors - including the UK's Department for International Development (DFID), the US-based Millennium Challenge Corporation (MCC), the European Union and the World Bank - either freeze or terminate assistance to Malawi, which relied on foreign aid for up to 40 percent of its annual budget. In response, the government passed a "Zero Deficit" budget in July 2011 which included 16.5 percent Value Added Tax (VAT) on many commodities that were previously excluded including bread, meat and milk, a move that has further eroded the purchasing power of the kwacha. (IRIN)

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