LILONGWE-(MaraviPost)-The central bank plays a crucial role in guarding the nation on monetary policy that cushions inflation, and forex shortages for buying power without injuring a common man in the village.
The central bank works closely with Ministry of Finance, particularly Treasury on fiscal discipline; prudent public funds expenditures.
Currently, the duo; Central Bank, Reserve Bank of Malawi (RBM), and Ministry of Finance are not in a healthy relationship where the other preaches something, and one does the contrary.
This is where Malawi’s ailing economy fails to get back on track as both sides are on receiving end.
For instance, In the 2023/2024 national budget, Finance Minister Sosten Gwengwe projected that the GDP growth rate will be at 2.8% but currently on the ground is 1.9%.
On inflation, Gwengwe assumed 17.9% but now is rated 29.8%. Not only that but also the policy rate was projected at 18%, currently pegged at 24%.
Was the Minister of Finance Gwengwe real when making projections in consultation with the central bank, particularly the Monetary Policy Committee (MPC) of RBM on inflation and policy rate?
Is RBM Governor Wilson Banda sensible in hiking the policy rate amid economic volatile Malawi is going through?
Revered economist, Chifipa Mhango observes that Policy lending rate hikes by RBM will add more pressure on borrowers.
He said, “In an economic environment where the currency is under continuous devaluation, that alone adds more inflationary pressures”.
“Much as the latest inflation rate eased to 27.3% in June 2023 from a high of 29.2% in May 2023, the level is well above the RBM target of 5%. That alone is concerning on how this will be contained using monetary policy instruments such as lending rates when especially food inflation rate remains elevated at 37.2%.
He further said RBM has since April 2022 hiked rates by 12%, from the 12% to 24%, thus representing 1,200 basis points.
“It is also concerning that Malawi Government is still not able to manage the fiscal challenges, as the deficit widens, thus implying revenue generation is weak and limited while spending appetite remains high.
“It is, therefore, imperative that Malawi Government plays its role in creating a conducive environment for economic expansion while also defining its policy clearly with actionable items around expenditure management.
“What RBM is doing to raise interest rates is a normal and predictable policy reaction, guided by the inflation rate outlook. However, if the other inflation pressures are a result of mismanagement of the economy on the fiscal front, then that needs urgent reflection on the part of the Malawi Government.
“Otherwise the country’s consumers and businesses alike are heading for a tough time on borrowing costs,” said Mhango, who is Chief Economist for Don Consultancy Group of South Africa.
All this is a result of a lack of insightful leadership both at central bank and Ministry of Finance to oversee economic trends for the common man in the village who tends to suffer when basic needs items including sugar, soap, cooking oil, and fuel prices go up due to inflation, local currency devaluation.
President Lazarus Chakwera’s Tonse Alliance government has failed to contain Malawi’s ailing economy since took reign of power in June 2020.
When the former governing Democratic Progressive Party (DPP) was leaving office, the policy rate was at 13.5% while inflation had single digits with a projection of economic growth of 5%.
Addressing the news conference at that time in Mzuzu former MPC chair Dr. Dalitso Kabambe added that Malawi had for the first time managed to anchor nonfood inflation to a single digit and also projected that it will remain low supported by relatively tight monetary policy as well as continued stability of the exchange rate.
“But we project that Malawi will maintain a single-digit inflation at least for the next 36 months as emerging risks the effects of Cyclone Idai and the elevated prices of maize are deemed temporary,” he said.
Dr. Kabambe as RBM governor was working closely with Finance Minister Joseph Mwanamveka, both economists.
The duo managed the economy despite the volatile political situations Malawi was going through after 2019 disputed elections through 2020.
Dr. Kabambe’s RBM managed to give waivers of taxes on lending and borrowing rates when COVID-19 hit hard in early 2020 and fuel prices were reduced. This is a quality of insightful leadership.
But the current Tonse Alliance government RBM’s Monetary Policy Committee (MPC) on July 26, 2023, noted that “the performance of the economy remained weak on account of adverse weather shocks; lingering effects of the Russia-Ukraine war; prolonged foreign exchange shortages and the associated exchange rate depreciation; as well as fiscal deficits”.
“The Committee resolved that a monetary policy response is required to contain demand and reduce inflation towards the medium-term target.
“Therefore, the MPC decided to increase the policy rate by 200 basis points to 24.0%, and the Liquidity Reserve Requirement Ratio (LRR) ratio on domestic deposits by 200 basis points to 7.75%.
But, Chakwera’s Tonse leadership lacks common measures that are used are the raising of the interest rates for borrowing money, introduction of new tax measures, and the reduction of government spending.
These measures are crafted in such a way that people should not have too much disposable income to push prices upwards. But the case is different with Chakwera Tonse Alliance leadership.
However, instead of the government and the Reserve Bank of Malawi implementing the list of measures that will stimulate the economy and get it back on track what is happening is that most of the policies that are being implemented are taking the economy deeper into trouble.
Amid the high cost of living and dwindling disposable income, the government has been introducing taxes that are further eroding the remaining consumer demand.
One would wonder how businesses, production, and manufacturing would grow when there is no domestic demand for the same. As a result, economic activities will continue to dwindle, companies will lay off staff as they will be making fewer sales, and overall economic growth with continue to slump.
The government talking about mega-farms and the much-touted ATM strategy which will promote investments in Agriculture, Tourism, and Mining. All these are good initiatives that can change the fortunes of this country.
But how can investors venture into such initiatives when our interest rates are among the highest in SADC? Investments need cheaper and easily accessible money.
Good economic policies are measured by how the welfare of ordinary citizenry is improved. How easy is it for ordinary Malawians to access basic needs?
