‘IMF, World Bank technical assistance and financial aid have not resulted in successful economic transformation for Malawi’

* Instead, this assistance has merely kept our economy in a state of near-collapse, fostering dependency rather than sustainable growth

* There is need to do more as a country by not relying solely on advice or policies from IMF or the World Bank

By Duncan Mlanjira

Concerned Malawian economist, Thomas Ngoma observes that over the years, Malawi government administrations have relied on monetary policy advice from the International Monetary Fund (IMF) and the World Bank — but the technical assistance and financial aid received “have not resulted in successful economic transformation”.

“Instead, this assistance has merely kept our economy in a state of near-collapse, fostering dependency rather than sustainable growth,” says Ngoma as he shared his deep concerns regarding the current state of Malawi’s monetary policy and its impact on the economy.

The Malawian executive economic management consultant based in the UK with over 35 years of experience advising clients on strategic business transformation both in public and private sector, first acknowledged the efforts made by the government and various stakeholders in addressing the economic challenges.

“However, there are critical areas that we need to address collectively to ensure sustainable growth,” he wrote on a forum of like minds of top economic experts named Hardtalk.

“It is imperative that we address Malawi’s current monetary policy to resuscitate our economy. Monetary policy is upstream of every economic activity in the country, and without first rectifying it, any development attempts will continue to result in failure.”

Thus he goes on to indicate Malawi’s dependence on the monetary policy advice from the IMF and the World Bank — adding that the country has demonstrated that its core monetary policy “is fundamentally unsound and inadequate for its development”.

“Rather than reducing interest rates to stimulate economic growth, the Monetary Policy Committee [of the Reserve Bank of Malawi] has raised the policy interest rate to levels that could break any economy in the world.

“Furthermore, the inflationary monetisation of the government deficit is a detrimental policy that erodes people’s purchasing power and exacerbates poverty.

“The central bank’s primary objective should be to stabilise the economy against adverse real-world shocks. Floating the Kwacha in the context of a perpetually deficit current account serves no purpose.

“Instead, we should consider fixing the exchange rate to counter the current account deficit (CAD), he said, adding that a central bank is supposed to employ the reserve ratio for monetary policy management but in this regard, “the RBM has chosen to use the liquidity reserve ratio (LRR) as its instrument.

“While the LRR ensures that commercial banks have sufficient liquid assets to meet their short-term obligations, it is ineffective in managing inflation.

“To combat inflation, the RBM should utilise the cash reserve ratio (CRR) instead — which, being a percentage of commercial bank deposits kept as reserves at the RBM, can significantly reduce inflation by controlling the money supply in the economy.

“Excessive money supply is the root cause of core inflation. Evidence suggests that Malawi’s monetary policy is fundamentally flawed. This raises the question of how such a situation persists despite consistent technical support from the IMF and the World Bank since 1979 and even earlier.”

Ngoma further says this indicates that there is need to do more as a country by “not relying solely on advice or policies from IMF or the World Bank”, while indicating that many RBM governors have have had working experience with the IMF, “yet these aspects of monetary policy remain faulty, driving our economy into stagnation and abject poverty”.

“How can a peaceful economy in peacetime operate with an inflation rate exceeding 30%, alongside constant currency devaluations and exorbitant interest rates that stifle investment and economic growth?

“I welcome your thoughts on this matter and encourage us all to work together towards a sustainable and prosperous economic future for Malawi. Let us foster a sense of unity and collective responsibility to bring about the necessary changes and improvements.

“Together, we can create a more resilient and thriving economy for the benefit of all Malawians, our children, and their children,” said Ngoma on the Hardtalk forum.

Yesterday, Chief Economist of South Africa’s Don Consultancy Group (DCG), Chifipa Mhango also shared that Malawi’s inflation rate has risen to a three-month high in January 2025, threatening RBM’s monetary policy direction.

In a statement, Mhango — who is DCG Director of Economic Research & Strategy — quotes latest inflation rate data released by RBM on its website, which shows that consumer price inflation rate rose to 28.5% year-on-year in January 2025, up from 28.1% in December — “marking the highest rate in three months”.

“The increase, according to National Statistics Office (NSO), was primarily driven by rising food costs at 36.0%, a surge of 0.4% from the previous month, attributed to increase in maize and its products, such as maize flour, alongside rice, bread, cooking oil, tomatoes, and other vegetables, which can be classified as basic commodities.

“This is worrisome for the ordinary Malawians and the masses that are already living in impoverished conditions, with no source of income due to the high unemployment levels of 91% for the entire workforce,” said Mhango in the statement copied to RBM Governor and his Deputy; Minister of Finance & Economic Affairs; Minister of Trade & Industry and the media.

The Chief Economist further observed that Malawi’s commodity price increases “are across the board, with prices for non-food items also surging in January 2025”, adding: “The economy experienced a surge in non-food prices to 16.9%, from 16.8% in the previous month of December 2024, as per data schedule.

“These high costs are mostly in restaurants and hotels, clothing and footwear, furnishings and household items, as well as housing, water and electricity.

“This is reflecting the hardship facing the entire Malawian society, from businesses to consumers, as costs of living escalate. In overall, consumer prices moved 4.7% in January 2025, following a 4.5% advance in December 2024 on a monthly basis.”

He added that although the “may have the hope of food prices declining in the next few months, as harvest period approaches, such is not guaranteed, as past seasons have demonstrated that climate change has provided unpredictable future projections on harvests”.

“It will also be challenging for the RBM to consider interest rates reduction soon, considering that the current inflation rate in Malawi at 28.5% is way above the 5% level that RBM targets as appropriate.

“The RBM is facing this dilemma to contain inflation rate in Malawi, which is the 10th highest rate in world and 4th highest in Africa, with its policy lending of 26%, currently 8th highest in the world and 5th highest in Africa — thus putting tremendous pressure on the price stability mandate of the RBM.

“The situation is further worsened by the country’s exchange rate environment and rising import bill,” he said, adding that It also has to be noted that “containing price stability is even more challenging, as prices or cost of living in the Malawi economy are reflective of the parallel foreign currency market”.

This parallel forex market is estimated at over MK4,000 to the US$, as a major trading currency, while the official RBM exchange rate is around MK1,750 to the US$.

“Such disparities in exchange rates, puts RBM’s key function responsibilities (price stability) out of its reach. Curtailing parallel foreign currency market activities, therefore, becomes the key responsibility of the RBM towards a stable monetary policy environment in Malawi.”

The DCG Chief Economist concludes by advising — as he has always done — that  “Malawi’s fight against rising cost of living requires alignment of fiscal policy, trade and industry policy, but also strict enforcement of the laws to curtail parallel foreign currency market trading, with efforts geared towards policy implementation than just a fictitious approach”.