* The system can reduce inflation to 2%, lower interest rates, and provide ample foreign exchange to purchase essential items like fuel, food, medicine, machinery, and spare parts, supporting industrialisation efforts
* Unlike the IMF’s ECF conditionality-based approach, a currency board can embed rule-based discipline into Malawi’s institutional framework
* Making fiscal prudence and reserve adequacy non-negotiable and self-enforcing as part of daily operations
By Duncan Mlanjira
Economic analyst, Thomas Ngoma — a UK-based Malawian executive management consultant — still insists that the Currency Board Arrangement (CBA) system is the only credible monetary policy solution for Malawi to implement in order to address the economic situation the country is in and thus advises President Peter Mutharika to consider adopting.
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Commenting on a HardTalk WhatsApp forum on of economic gurus, Ngoma said now that the elections have concluded and a new government is in place, “a crucial question arises — which monetary policy should Malawi consider to adopt moving forward?”
He observes that Malawi’s prolonged engagement with the International Monetary Fund (IMF) Extended Credit Facility (ECF) since 1979 “has not achieved sustained macroeconomic stability due to weak enforcement of fiscal discipline, recurrent monetary financing of deficits, and limited institutional credibility”.
“A CBA presents a superior alternative,” says Ngoma. “By legally prohibiting discretionary money creation and anchoring the domestic Kwacha to a stable foreign reserve, such as the RSA Rand, US dollar, or Euro at a fixed exchange rate, a CBA can enforce hard budget constraints, eliminate inflationary financing, and restore public trust in monetary policy.
“This system can reduce inflation to 2%, lower interest rates, and provide ample foreign exchange to purchase essential items like fuel, food, medicine, machinery, and spare parts, supporting industrialisation efforts.
“Unlike the ECF’s conditionality-based approach, a currency board can embed rule-based discipline into Malawi’s institutional framework, making fiscal prudence and reserve adequacy non-negotiable and self-enforcing as part of daily operations.”
He observes that countries opt for IMF programmes such as the ECF as a short solution “as seen in the case of Greece — however, Malawi has relied on the ECF for 46 years, which is a significant mistake. A CBA offers Malawi a legal way to wean itself off the ECF without violating international monetary system regulations”.
Ng’oma, who had persistently advised former President Lazarus Chakwera’s administration to opt for the CBA to bail out of the economic crisis it was going through, maintains that “Malawi’s widening current account deficit and persistent black-market exchange rate gap expose the deep flaws of its floating exchange rate and discretionary monetary policy regime”.
“The kwacha’s instability — driven by inconsistent central bank interventions and chronic fiscal deficits — has eroded public trust, incentivised currency hoarding, and diverted trade through informal channels.
“As import costs surge and foreign exchange becomes scarce, the official rate loses credibility, forcing businesses and households to rely on parallel black-markets where rates are significantly higher.
“This dual exchange rate system distorts price signals, undermines investment planning, and fuels inflation — especially in a country heavily reliant on imported fuel, fertilizer, machinery and other important commodities.
“Discretionary monetary policy, often used to finance deficits or manage short-term crises, has amplified these distortions by weakening reserve adequacy and fuelling speculative behaviour.
“Transitioning to a currency board would anchor the kwacha to a stable foreign currency. This will eliminate the central bank ability to print money arbitrarily, enforces hard budget constraints, and restores credibility to the exchange rate regime.
“By removing discretion, a currency board will close the gap between official and parallel black-market rates, simplify trade and investment decisions, and stabilise inflation expectations. It also will discipline fiscal recklessness behaviour by making deficit monetisation impossible by law — forcing the government to live within its means.
“For Malawi, this shift would transform macroeconomic governance from reactive and opaque to rule-based and transparent, laying the foundation for sustained growth, investor confidence, and regional competitiveness.”
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In 2023, Ngoma also suggested the CBA option in response to President Chakwera’s administration opting to use the IMF ECFas an emergency source of foreign reserves. He warned about the restrictions imposed by IMF conditionality from ECF borrowing, which he presented as a case study at an international workshop.
Ngoma explained that “a currency board backs its currency either 50% or 100% by an anchor foreign currency like the US dollar, British pound, or euro at a fixed exchange rate”.
“This system manages the exchange rate and money supply separately or within the central bank. Additional benefits of the CBA include low core inflation, increased investor confidence, and the elimination of forex shortages.”
In summary, Ngoma has been highlighting that the CBA “will bring economic stability to Malawi through rule-based governance, low inflation, and increased investment, which has the potential to spur rapid economic growth and industrialisation”.
He also criticised past choices like the soft fix peg during President Mutharika’s 2014-2019 administration and Chakwera’s floating type, which he argued promotes economic instability — while advocating for a hard peg, which he said European nations have used effectively since the inception of central banking.
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