By Kingsley Jassi:
Government borrowing continues to dominate Malawi’s banking system, with public sector credit reaching K6.5 trillion by the end of the first quarter compared to just K1.5 trillion for private sector lending, Reserve Bank of Malawi (RBM) statistics show.
The skewed credit allocation reflects limited investment in productive sectors, with economists warning that government borrowing primarily funds consumption rather than growth-enhancing activities.
According to RBM’s latest monthly economic review, private sector credit growth declined in March while public sector borrowing surged, driven mainly by Central Government financing needs.
“Net claims on the Central Government by the Reserve Bank of Malawi increased by K86.3 billion to K2.5 trillion in the review month compared to an increase of K100.9 billion recorded in the previous month,” the RBM report states.
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The central bank acknowledged this created expansionary monetary conditions despite ongoing efforts to tighten money supply, partly due to increased Treasury note issuances.
However, the impact was partially offset by settlement of all outstanding Ways and Means advances in compliance with the RBM Act 2018, plus a K70 billion increase in government deposits at the central bank during March.
The Act restricts central bank financing of government operations to prevent inflationary pressure, though compliance has been inconsistent recently.
Private sector credit growth decelerated to 17.8 percent in March from 19.7 percent in February, with total lending increasing by K1.2 billion to
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K1.5 trillion—significantly lower than the 26.6 percent growth recorded in March 2024.
The modest increase was driven primarily by household loans and mortgages, which rose by K10.8 billion and K268 million, respectively, in March.
“…however, net repayments were recorded in foreign currency-denominated loans and commercial and industrial loans amounting to K6.1 billion and K3.8 billion in the month under review,” the report notes.
Economic analyst Lesley Mkandawire warned that continued government borrowing dominance would constrain industrial expansion as businesses struggle to access credit for growth initiatives.
“When government borrows, it is primarily for consumption, paying bills and other obligations,” Mkandawire said.
Sectoral lending statistics revealed mixed performance, with expansions recorded in financial services (K4.0 billion), manufacturing (K2.9 billion), construction (K1.9 billion), restaurants and hotels (K1.6 billion), real estate (K1.4 billion), agriculture (K258.4 million) and mining (K255.2 million).
Conversely, wholesale and retail trade led declines with K7.7 billion reduction, followed by utilities (K5.2 billion), transport and communications (K1.4 billion) and community services (K668.1 million).
