ICAM still maintains that Malawi does not meet the full criteria of a hyperinflationary economy under International Accounting Standard (IAS) 29

* Hyperinflation refers to rapid and unrestrained price increases and inflation in an economy over time, typically at rates exceeding 50% each month

* Hyperinflation can occur in circumstances affecting the underlying production economy in conjunction with a central bank printing excessive money

By Duncan Mlanjira

Malawi Institute of Chartered Accountants (ICAM) still maintains that despite exceeding quantitative inflation thresholds, the overall assessment remains that the country does not meet the full criteria of a hyperinflationary economy under International Accounting Standard (IAS) 29.

In June last year, ICAM also assured that public that Malawi’s economy was not hyperinflationary at that time following reports from PwC, the International Monetary Fund’s (IMF) World Economic Outlook, and the International Practices Task Force (IPTF), that suggested that Malawi could be classified as hyperinflationary by December 31, 2024.

According to international accounting firm, Deloitte, IAS 29 applies where a country’s functional currency is that of a hyperinflationary economy. Hyperinflation refers to rapid and unrestrained price increases and inflation in an economy over time, typically at rates exceeding 50% each month.

Hyperinflation can occur in circumstances affecting the underlying production economy in conjunction with a central bank printing excessive money.

The IAS 29 standard does not prescribe when hyperinflation arises but requires the financial statements (and corresponding figures for previous periods) of an entity with a functional currency that is hyperinflationary to be restated for the changes in the general pricing power of the functional currency.

In its May 2025 statement on the assessment of Hyperinflation in Malawi, ICAM president, Daniel Jere reports that Malawi adopted International Financial Reporting Standards (IFRS) in 2001, and that IAS 29 governs financial reporting in hyperinflationary economics.

“Determine whether a country meets the IAS 29 threshold requires evaluating qualitative and quantitative factors, including cumulative inflation and behaviours in the economy.

“As at March 31, 2025, cumulative inflation in Malawi over a three-year cycle reached 118% (112% per previous assessment as at 30th November 2024), surpassing the 100% IAS 29 threshold.

“However, despite the high inflation, the other qualitative indicators of hyperinflation were not evident as at that date. Most prices remain quoted in Malawi Kwacha, and the population continued to value it as legal tender for transactions in the country.

“There was no evidence of widespread immediate investment of local currency to preserve purchasing power or of prices and wages being indexed to inflation.”

ICAM takes note of Malawi’s “prolonged shortage of foreign currency [which] led to a reliance on the parallel market, which contributed to inflationary pressures”.

“Food inflation remained relatively higher than anticipated due to maize shortages in some parts of the country. This notwithstanding, sales and credit transactions were still largely based on historical costs, interest rates remained stable (with policy rate remaining at 26% and wage adjustments were not aligned with CPI changes.

Thus, ICAM contends that “despite exceeding quantitative inflation thresholds, the overall assessment remains that the country does not meet the full criteria of a hyperinflationary economy under IAS 29”.

“Therefore, hyperinflationary financial reporting directive issued on 27th December, 2024 remains in force,” says Gondwe in the statement, adding that ICAM will continue to monitor the situation and will issue a comprehensive guidance as at June 30, 2025.

Key characteristics hyperinflationary economy — as defined in internet sites — include:

* Rapid price increases — monthly inflation rates exceeding 50% are a defining feature;

* Loss of purchasing power — people’s money becomes worthless quickly, making it difficult to purchase goods and services;

* Preference for non-monetary assets — individuals may hoard assets that hold their value, like gold or foreign currency, rather than holding the local currency;

* Reliance on foreign currencies — prices may be quoted in a more stable foreign currency, and transactions may occur in those currencies;

* Credit transactions adjusted for inflation — credit agreements will account for the expected loss of value of the local currency during the credit period

* Indexed wages and prices — wages, interest rates, and prices may be linked to a price index to help manage the impact of inflation; and

* Cumulative inflation rate — cumulative inflation rate of 100% or more over three years is a key indicator.

The International Financial Reporting Standards (IFRS), which Malawi joined in 2001, are a set of high-quality accounting standards developed by the International Accounting Standards Board (IASB), which serve as a global framework for preparing and presenting financial statements, ensuring consistency and comparability in financial reporting across different countries and entities. 

Key aspects of IFRS include:

* Purpose — to provide a common language for financial reporting, making it easier for investors, creditors, and other stakeholders to compare financial information from different companies;

* Adoption — IFRS is adopted by more than 140 jurisdictions worldwide, including the European Union;

* Principles — IFRS is based on a principles-based approach, meaning it provides guidance rather than detailed rules, allowing for flexibility and adaptability in specific situations;

* Benefits — IFRS aims to enhance transparency, comparability, and accountability in financial reporting; and

* Global standard — IFRS is considered the global standard for financial reporting, making it essential for companies operating internationally. 

IAS 29 was issued in July 1989 and is operative for periods beginning on or after January 1, 1990.