By Kingsley Jassi:
The Economics Association of Malawi (Ecama) has called for greater Reserve Bank of Malawi (RBM) autonomy to limit excessive domestic borrowing.
This has been said after, in September last year, public debt hit K22.4 trillion, with domestic debt accounting for 65 percent.
Ecama argues that the central bank has been complicit on the issue of domestic borrowing by facilitating Treasury bills and printing money to finance high deficits, contrary to its own tight monetary policy stance.
With fiscal deficits hovering around 10 percent of gross domestic product (GDP)—the highest in Africa—the association warns that continued borrowing is worsening the fiscal position, with interest payments already budgeted at K2.3 trillion, about half of total domestic revenue.
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“With central bank independence, RBM will be able to set limits on how much it can lend to [the] government, thereby limiting excessive domestic borrowing,” Ecama’s pre-budget consultations presentation states.
However, Finance Minister Joseph Mwanamvekha outrightly rejected the proposal during Friday’s budget consultations in Lilongwe.
“Independent from who? Our understanding is that there must be coordination between RBM and [the] Treasury because whatever we do affects monetary policy. We should always collaborate to ensure the policies speak to each other,” Mwanamvekha said.
RBM has repeatedly called for policy alignment between the fiscal and monetary authorities, hinting at contradictory fiscal policy that has driven up money supply while monetary policy attempted to limit money circulation and reduce inflation and forex pressure.
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Current law already imposes controls on RBM’s budget financing, permitting advances— known as ways and means—only in amounts not exceeding 20 percent of the government’s annual budgeted revenues from domestic sources.
The RBM Act further requires that all short-term advances be repaid within four months of the financial year’s end, with no further advances permitted until outstanding amounts are settled.
At mid-year, the Treasury had already over-borrowed by 33.8 percent, sending fiscal policy off track.
