The World Bank says distortions related to the Reserve Bank of Malawi (RBM) foreign exchange operations have affected the central bank’s balance sheet, requiring fiscal transfers and recapitalisation through the issuance of promissory notes.
Economists have since warned that the situation could weaken fiscal credibility while increasing domestic debt, but without corresponding productive spending.
The losses, according to a World Bank analysis, have been significant, at K708.7 billion in 2024 from K200.4 billion in 2023, resulting in higher fiscal deficits than reported on fiscal accounts.
Reads the World Bank’s analysis in the Malawi Public Finance Review: “RBM continues to intervene in the market as a net seller of forex rather than a net buyer, pushing losses up and depleting reserves.
“Over the past five years, the RBM has sold over $3.1 billion [about K5.4 trillion] in foreign exchange to the market and has purchased $2.56 billion [about K4.4 trillion], resulting in net sales of $600 million [about K1 trillion]. Since these sales have been at an overvalued rate, indicative calculations indicate an aggregate loss of K481.7 billion over the same period.”
World Bank data show that as of March 2025, the stock of promissory notes held by the RBM stood at K660.5 billion and were offset by a dividend of K344.1 billion, which should have accrued to the government in lieu of the RBM’s declared profits in 2024.
Although the gap between the median forex bureau rates and the official rate has remained stable, at approximately 11.5 percent, the parallel market premium has surged significantly, exceeding 150 percent, according to RBM.
This large gap has spilled into prices, with pass‑through expectations feeding inflation.
In a written response on Sunday, Mzuzu University economics lecturer Christopher Mbukwa observed that the distortions lead to self-reinforcing challenges that lead to problems on the market.
He said: “These lead to more accumulation of domestic debt and crowd out spending to key sectors. Furthermore, loss of forex reserves perpetuates forex shortages, which brings other challenges, including rising commodity prices.”
Scotland-based Malawian economist Velli Nyirongo said distortions in RBM’s forex operations create a vicious cycle where selling dollars at overvalued rates generates quasi-fiscal losses that are transferred to the government, weakening fiscal credibility, widening the true deficit and undermining monetary independence.
He said: “These interventions also distort the forex market, fuel speculation and reserve depletion and intensify inflation and exchange-rate pressures, reinforcing macroeconomic instability.”
Meanwhile, Malawi Confederation of Chambers of Commerce and Industry 2025 Business Climate Survey showed that forex scarcity emerged as the most significant business challenge in 2025, with 74.1 percent of respondents ranking it among their top three challenges while inflation was cited as the second most critical constraint at 70.4 percent.
Reads the survey in part: “Without decisive intervention, the combined pressures of forex scarcity, inflation, high input costs and financial instability will continue to weaken businesses and impede the country’s economic recovery and competitiveness.”
Since 2022, Malawi has been in a severe balance‑of‑payments crisis, with RBM implementing several market interventions to avert the crisis.
In August last year, the RBM announced a reduction in the mandatory conversion rate for export revenues from 30 percent to 25 percent, with further reductions for qualifying companies anticipated.
In March last year, RBM also amended foreign exchange controls to promote import substitution and incentivise the export sector while curbing the use of informal sources of funds for importation.
RBM also reduced the mandatory conversion ratio from 70 percent to 50 percent for non-governmental organisations and introduced a verification requirement for importers to demonstrate that their imports have been financed through the formal banking channel.
