Malawi’s money supply (M2) accelerated by 44.9 percent in December 2024, figures from the Reserve Bank of Malawi (RBM) show.
In its December 2024 issue of the Monthly Economic Review, the central bank observed that money supply, the total amount in circulation, rose by 12.7 percentage points, increasing from 32.2 per cent in the previous year.
This increase was driven by robust growth in demand deposits, which reached K835.4 billion, and in term deposits, which increased to K681.8 billion over the period.
Furthermore, currency held outside banks grew by K183.6 billion whereas foreign currency‐denominated deposits declined by K50.7 billion amid forced conversion measures and withdrawals to finance agricultural inputs and imports.
On a monthly basis, M2 expanded by K303.2 billion (6.0 per cent) to reach K5.3 trillion. Demand deposits increased by K197.5 billion, term deposits by K121.1 billion, and currency held outside banks by K21.9 billion.
The central bank attributed the surge to three factors: the mandatory conversion of foreign currency deposits under new Exchange Control Regulations, a seasonal liquidity boost during the festive period, and aggressive lending practices by commercial banks.
Net Domestic Assets (NDA) rose by K2.0 trillion year-on-year to K6.9 trillion, supported by an increase in domestic credit, which climbed by K358.7 billion to reach K7.6 trillion. Notably, claims on the central government increased by K313.6 billion, while Net Foreign Assets (NFA) declined sharply by K397.9 billion, reaching -K1.6 trillion.
Government borrowing played a central role in these developments. Credit to the public sector increased by K316.1 billion to reach K6.0 trillion in December 2024, largely attributable to higher net credit to the central government.
Commercial banks bolstered their holdings of Treasury notes by K163.3 billion, reaching K2.3 trillion, and Treasury bills by K30.7 billion, reaching K797.5 billion. Additionally, the RBM’s net claims on the central government rose by K92.8 billion to reach K2.4 trillion, partially offset by an increase in government deposits following the receipt of $82.6 million allocated for donor-supported projects.
The private sector also benefited from the increased liquidity, with their credit accelerating to an annual growth rate of 25.8 per cent in December 2024, up from 18.7 per cent in November and 17.9 per cent in December 2023.
However, the rise in money supply has raised concerns regarding inflationary pressures, particularly as most borrowing is directed towards the public sector for domestic consumption, while the private sector receives comparatively lower amounts.
In an interview, Scotland-based Malawian economist Velli Nyirongo warned that the country risks exacerbating rising local prices if authorities fail to match the growth in money supply with increased production.
“This scenario disproportionately affects rural and small-income households, whose incomes are fixed and usually spend a higher proportion of their earnings on essential goods,” he stated.
He further explained that rising prices would erode the real value of money, a view echoed by the World Bank in the Malawi Economic Monitor (MEM), released in January 2025.
In the MEM, the World Bank urged authorities to “control inflation by limiting the growth of money supply and ending monetary financing of the fiscal deficit.”
