By Benadetta Chiwanda Mia
Africa-Press – Malawi. Malawi’s broad money supply (M2) grew at an annual rate of 39.3 percent in May 2025, from 37.8 percent the preceding month.
The growth is, however, lower than the 47.7 percent recorded in May 2024.
In its Monthly Economic Review for May 2025, the Reserve Bank of Malawi (RBM) says the uptick in M2—a key indicator of money circulating in the economy—was largely driven by increased government borrowing in recent months.
According to the report, year-on-year, demand deposits rose by K669.7 billion in May, from K596.9 billion in April while currency in circulation increased to K385 billion, compared to K266.4 billion in April.
Less liquid components of M2—term deposits and foreign currency-denominated deposits—showed signs of stagnation or decline.
Term deposits rose by K732.2 billion, lower than K763.5 billion in April, while foreign currency deposits declined by K58 billion, a steeper drop than the K42.1 billion fall recorded the previous month.
This trend suggests a shift in preference from savings to spending, possibly due to rising costs of living and increased demand for cash.
The contribution of demand deposits and currency in circulation to M2 growth rose to 15.2 and 8.7 percentage points, respectively, up from 14.2 and 6.4 in April.
Meanwhile, the contribution from term deposits and foreign currency deposits declined to 16.7 and minus 1.3 percentage points, respectively.
On a month-on-month basis, M2 rose by K368.3 billion (6.4 percent) to K6.1 trillion in May.
This increase was attributed to seasonal liquidity needs, particularly for agricultural marketing, which saw more cash being withdrawn or moved into demand deposit accounts.
Currency outside the banking system also rose by K247.1 billion to K1 trillion while demand and foreign currency deposits increased by K128.7 billion and K11.2 billion, respectively.
In contrast, term deposits dropped by K33.6 billion, indicating a reallocation of funds toward more liquid assets to facilitate immediate purchases.
From the asset side, the expansion in M2 was primarily fuelled by Net Domestic Assets (NDA), which recorded a year-on-year increase of K2 trillion, up from K1.8 trillion in April.
Consequently, the contribution of NDA to annual M2 growth rose to 45.8 percentage points, from 42.4 the previous month.
In contrast, Net Foreign Assets (NFA) continued to weaken, registering a deeper annual decline of K273.2 billion in May, compared to a K195.7 billion fall in April.
The negative contribution of NFA to M2 growth thus worsened to minus 6.2 percentage points, from minus 4.7 in April—a reflection of Malawi’s fragile external position, likely due to lower foreign exchange inflows and continued trade imbalances.
Economist Marvin Banda said the statistics painted a contradictory picture for an economy said to be going through tight monetary conditions.
“It is even more worrisome when the dynamic of Net Foreign and Domestic Assets is considered because the ATMM (Agriculture, Tourism, Mining and Manufacturing) strategy is said to require a lot of FDI, yet domestic assets are tremendously outperforming the foreign assets,” Banda said
Banda highlighted that while seasonal factors such as agricultural trade had contributed to the money supply expansion, increased public spending related to debt servicing and election-year fiscal behaviour was the main driver.
Source: The Times Group
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