The Reserve Bank of Malawi (RBM)’s tight monetary policy stance has exhibited a mixed impact on the economy in the past 21-months to end September 2024.
A Financial and Economic Review Number 3 of 2024 from the central bank shows an increase in broad money and net domestic claims, and a negative trajectory on net foreign assets during the period.
For example, broad money—the total money supply in the economy, including currency and deposits—showed a steady increase in 2023, starting at K2,721.1 million in the first quarter and reaching K3,678.9 million in the last quarter.
It shows that in 2024, the upward trend continued, peaking at K4,901.2 million in the third quarter. Significant quarterly growth occurred in the second quarter of 2023 recorded at K504.6 million and second quarter of 2024 at K576.7 million.
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The issue further shows that Net Domestic Claims – claims on the government, statutory bodies, private sector credit, and other financial corporations – increased significantly in 2023, from K3,992.4 million recorded in the first quarter to K5,425.6 million in the last quarter.
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The upward trend was also seen in 2024, reaching K6,859.5 million in the third quarter.
Individual component performance uncovers that government borrowing rose from K2,672.4 million in the first quarter of 2023 to K4,774.4 million in third quarter of 2024, with spikes in the fourth quarter of 2023 at K684.4 million and second quarter of 2024 at K425.6 million.
Furthermore, credit to the private sector increased consistently, from K1,002.7 million in the first quarter of 2023 to K1,474.2 million recorded in the third quarter of 2024 indicating a gradual recovery in private-sector activities while statutory bodies’ growth was more modest, peaking at K534 million in the third quarter of 2024.
On Net Foreign Assets – the net position of foreign reserves held by the central bank and commercial banks – the report highlights a negative trajectory throughout the period, reflecting a persistent deficit in foreign exchange reserves.
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For instance, a marked deterioration was observed in the third quarter of 2024 at -K2,047 million.
The official reserves saw a sharp drop from -K2310.7 million in the first quarter of 2024 to -K2,431.6 million in the third quarter of 2024.
UK-based Malawian economist Velli Nyirongo said the sustained increase in broad money and domestic claims suggest an expansionary monetary policy, potentially fuelling inflation if not matched with real economic growth.
“The negative Net Foreign Assets highlights Malawi’s reliance on imports and limited foreign currency reserves, possibly linked to a weak export base or external debt servicing. The growth in credit to the private sector reflects economic recovery efforts, though the pace needs to accelerate to drive robust growth,” Nyirongo said.
Another economist Marvin Banda said Malawi’s broad money grows mainly due to the untamed growth in demand and term deposits especially at the end of the tobacco season.
“When rates are higher, people are more likely to lock in their funds into longer-term deposits or higher-yielding accounts, providing banks with greater stability; however, the duration is determined by the needs of the agricultural cycle.
