The Reserve Bank of Malawi (RBM) has reported that the growth of money supply has moderated in the past year. The development may point to liquidity challenges in the foreseeable future.
In its January 2025 issue of the Monthly Economic Review, the central bank observed that the enforcement of the Exchange Control Regulations (2024)—requiring the conversion of foreign currency-denominated deposits into kwacha—has reportedly significantly reduced forex holdings in commercial banks, affecting businesses reliant on imports and external transactions.
Broad money (M2)—which measures the total supply of money in the economy, including cash, demand deposits, and term deposits—grew by 40.8 percent year-on-year in January 2025, down from 45.1 percent in December 2024.
The report reads: “The slowdown in M2 growth was mainly attributed to term deposits [time and savings] and foreign currency-denominated deposits. Specifically, term deposits recorded a lower year-on-year increase of K447.7 billion in January 2024, compared to an increase of K691.1 billion in December 2024.
“Similarly, foreign currency-denominated deposits registered a year-on-year decline of K56.9 billion in the review month compared to a decrease of K50.7 billion in the previous month.”
Government borrowing rises as private sector lending shrinks
While liquidity in the banking sector tightened, government borrowing surged, with net credit to the central government from commercial banks rising by K218.6 billion in January 2025, primarily due to increased holdings of Treasury notes and bills.
The total public sector indebtedness to commercial banks reached K6.2 trillion, raising concerns about the potential crowding out of private sector credit.
At the same time, private sector credit growth slowed to 21.4 percent in January 2025 from 29.4 percent in December 2024. Businesses borrowed K10.3 billion less in January, a reversal from the previous month’s increase.
However, Scotland-based economist Velli Nyirongo has previously cautioned that the growth in money supply could pile pressure on inflation, a sentiment echoed by the World Bank in its January 2025 issue of the Malawi Economic Monitor.
“Inflationary pressures are expected to mount if the growth in money supply is not matched by a corresponding increase in the production of goods,” he said in a WhatsApp response.
In an earlier interview, economics researcher and consultant Exley Silumbu, expressed concern that the drop in credit to the private sector, if sustained for an extended period, would undermine the country’s capacity to produce in the short-medium term.
