Renowned economist Ronald Mangani Wednesday tore apart Reserve Bank of Malawi (RBM) monetary policy regime, describing it as anti-growth, anti-development and far from being an enabler of economic resilience.
Monetary policy is a set of tools used by a nation’s central bank to control the overall money supply and promote economic growth.
Presenting a paper titled ‘Towards More Resilient Economies: The Monetary and Exchange Rate Policy’ during the 2022 Monetary Policy Conference, Mangani said monetary policy regime is ineffective because the institution is shackled by the International Monetary Fund.
According to Mangani, not only is the policy regime self-defeating, given that inflation can be dampened through expansionary rather than contractionary policy, it also creates deep exchange rate and fiscal policy challenges.
Fiscal policy is the use of government spending and taxation to influence the economy.
“Together with foreign debt, therefore, monetary policy is currently a core instrument for the continuation of colonisation in Malawi and the rest of the developing world.
“Reforms to re-entrench the growth and developmental roles of the central bank are both inevitable and overdue. God save the central bank,” Mangani said.
He added that production and growth are the only credible objectives of macroeconomic policies and that capital is the most important production factor.
He said the current conduct of monetary policy in Malawi sets price stability as a pseudo-factor of production, thereby crowding out the critical roles of both the central bank and domestic capital in production, growth and development.
“The regime also labels domestic capital as ‘bad money’ (called excess liquidity), while foreign capital is ‘good money’, despite the latter’s role in detrimentally deepening illicit financial flows.
“Exchange rate and fiscal policies have been subservient to and are stifled by monetary policy, yet both external and fiscal imbalances are the most conspicuous inscriptions of the failures of the policy regime,” the economist said.
He was quick to note that while an effective reversal of the current monetary policy stance requires a complete overhaul of the global financial architecture, Malawi must urgently implement legal and other reforms to redeem RBM “from being an agent of impoverishment and the perpetuation of colonisation, into a pivotal State institution in the attainment of Malawi 2063 aspirations”.
Mangani, who once served as Secretary to Treasury, said a rules-based monetary policy approach is necessary to achieve a nationally rewarding intermediation function.
The two-day 2022 Monetary Policy Conference is taking place in Lilongwe under the theme ‘Monetary Policy in the 2020s’ and has attracted economic experts from the public and private sectors as well as the academia.
Labour Minister Vera Kamtukule, who officially opened the conference, challenged the economic experts to make monetary policy the catalyst of realising Malawi’s long-term vision.
“The question that this conference must answer is to what extent does Malawi’s monetary policy catalyse our attainment of this aspiration? What are the gaps, opportunities, challenges? How can we overcome them? What will be the role of government, private sector and development partners?” Kamtukule said.
RBM Governor Wilson Banda said experiences of the recent economic shocks should stimulate the rethinking of what central banks can do to enhance economic resilience.
Banda said considering the shocks and transformations that FinTech innovations have brought to the policy landscape of central banks, there is also a need to assess whether monetary policy in its current design is suitable to achieve the desired economic resilience.
He said RBM organised the conference to provide a platform for stakeholders to discuss these issues and brainstorm on ways that will promote economic resilience.
“Let me also take this opportunity to inform you that RBM is in the process of modernising its monetary policy formulation process to make it more forward looking.
“This has been done by adopting the Forecasting and Policy Analysis System. The system has better models that allow us to project the outcomes of various variables in a more methodical and transparent manner,” the RBM chief said.