Treasury gives RBM K600 billion bailout
Treasury has given the Reserve Bank of Malawi (RBM) a K600 billion bailout following a K539 billion loss the central bank made in the 2023/24 financial year due to foreign exchange rate losses.
RBM spokesperson Mark Lungu spokesperson confirmed the recapitalisation, saying it was implemented to stabilise the central bank.
He said: “It is in the form of a promissory note and was processed. That covers the net loss and should be enough.”
But Treasury spokesperson Taurai Banda could not provide details on the impact of the move on the fiscal policy, saying Secretary to the Treasury Betchani Tchereni will make a statement on the same.
The bank made exchange rate losses on its foreign liabilities totalling K708.6 billion as a result of the 44 percent kwacha devaluation affected in November 2023.
On the International Monetary Fund (IMF) liabilities alone, the bank made exchange rate losses worth K252 billion.
The November devaluation left the kwacha trading at K1 700 from K1 180 to the dollar and further depreciations have put the local currency at the current K1 751.
The K539 billion annual financial loss occurred despite the central bank making an operating profit of K169 billion, an increase from K84 billion in 2022.
That year, the bank’s consolidated results also had that operational profit eroded by exchange rate losses, leading to an annual consolidated performance of K112 billion loss following that year’s 25 percent devaluation.
However, the 2023 statement shows that the central bank’s assets grew to about K4.3 trillion in the year from K2.9 trillion.
Financial experts Bond Mtembezeka and Lesley Mkandawire have since said the central bank’s exposure to foreign exchange rate shocks results from its role of building reserves which exposes it to foreign liabilities.
Mkandawire said since the RBM is owned by the government, some losses by the central bank require reverse transfers from the Treasury to RBM for recapitalisation as is the case currently.
He said: “In order to protect the public, the central bank takes hard decisions to regulate the market by intervening to keep interest rates low and exchange rates stable apart from the costs of printing money and operations. Again, in order to ensure liquidity on the financial market the central bank has to trade in the international market to acquire the reserves.
“If we devalue and there is nothing to export or insignificant exports we do not have enough reserves accumulating. That exposes the central bank to exchange rate losses.”
On his part, Mtembezeka, an economist, said it is difficult to hedge against such exposures at any point as, being a central bank, RBM always has huge foreign exchange positions.
“Generally speaking, exchange rate risk can be hedged through the employment of derivative instruments such as forwards and options and the Reserve Bank has access to such instruments.” he said.
Meanwhile, Lungu said the country needs to diversify and enhance the means of foreign exchange generation, adding that is the only way the exchange rate will be effectively managed.
