Treasury backs move to boost RBM capital
The Ministry of Finance and Economic Affairs has justified proposals to recapitalise the Reserve Bank of Malawi (RBM), saying the central bank also loses money when conducting open market operations.
The issue came to light on Tuesday in Lilongwe when officials from the Ministry of Finance and Economic Affairs appeared before the Parliamentary Cluster Committee of Budget and Public Accounts.
A member of the committee Nedson Poya, who is Zomba Ntonya legislator, wanted to understand why the central bank has to be recapitalised by the government when commercial banks operating in the same economic are posting profits.
He said: “Why do we need to recapitalise RBM? How is the central bank making losses when RBM, the banker of the banks is failing to generate enough funds for itself?”
In response, Principal Secretary for economic affairs in the Ministry of Finance and Economic Affair, Ted Sitimawina said it is not right to hold the central bank to the same standard as commercial banks because central banks lose money when conducting open market operations.
He said: “The central bank can sometimes post losses because they carry out operations that commercial banks do not carry out. For example, with the recent devaluation, the central bank needed to carry out open market operations.
“So, that leads to losses because central banks incur costs as they enter the market.”
Aside from the recapitalisation of the central bank, Sitimawina said the 44 percent devaluation of the kwacha, the upward adjustment of the policy rate from 22 to 24 percent and debt service of loans to finance budget deficits were some of the other factors that pushed up the country’s debt.
Data contained in the RBM Consolidated and Annual Financial Statements shows that the central bank recorded a loss of K187.5 billion at the end of 2022 compared to K77 million profit in 2021.
The figures further show that in 2020, RBM made a K57 billion profit, which was tripple the K19.4 billion profit made in the preceding year.
Speaking in a separate interview, RBM spokesperson Mark Lungu acknowledged that the central bank loses money when it enters the market to clear out discrepancies and disruptions.
He said: “Open market operations is one of the key instruments the central would use to mop liquidity in the system if money supply is more than necessary and this indeed comes at a cost.
“That is normal for central banks.”
Lungu, however, said it was too early to conclude that RBM needs to be recapitalised because it made losses.
“RBM accounts are not yet out for 2023 and are still being constructed and, therefore, it will be premature for us to comment on the numbers.”
However, figures from RBM show that in 2022, net government operation closed at a deficit of K455.9 billion, deterioration from the K192.3 billion in the previous year. n
