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CBA offers a credible, rule-based alternative for macroeconomic stability and industrial transformation that incorporates ISIC codes * Extended credit facility (ECF) programmes rely on conditionality and reform promises, but enforcement is weak and without domestic institutional discipline * Malawi has struggled to restructure external debt, a key ECF condition, leaving the country exposed to rollover risks and high interest burdens By Duncan Mlanjira Economic analyst. Thomas Ngoma still maintains that Malawi should try to opt for Currency Board Arrangement (CBA) as credible and internationally accepted alternative solutions to rescue the ailing economy, saying “the long-standing reliance on IMF’s Extended Credit Facility (ECF) and discretionary monetary policy in Malawi have failed to transform and industrialise the economy”. Ngoma — a UK-based Malawian executive management consultant with over 35 years of experience advising clients on strategic business transformation both in public and private sector regulated environments — started talking of CBA as a solution way back in 2022 when former President Lazarus Chakwera-led administration was facing chronic shortage of foreign exchange and low foreign reserves. A CBA is a monetary system where a country’s currency is pegged to a foreign currency, typically a strong and stable one like the US dollar or the euro through which the reserve bank issues local currency only if it’s backed by an equivalent amount of foreign currency reserves. This system aims to maintain exchange rate stability and control inflation — a strict rule-based system for managing a country’s money supply. Thus Ngoma still contends that a CBA “offers a credible, rule-based alternative for macroeconomic stability and industrial transformation that incorporates ISIC codes”, adding that the IMF ECF and the discretionary monetary policy have failed because of “persistent fiscal indiscipline”. “Malawi’s government spending has consistently outpaced revenue, leading to chronic budget deficits. ECF programs rely on conditionality and reform promises, but enforcement is weak and without domestic institutional discipline.” On the forex shortages, Ngoma observes that “the kwacha has faced repeated devaluations and parallel market pressures due to inadequate reserve accumulation [while] discretionary forex management has failed to build confidence or attract sustained inflows”. He added that Malawi has struggled to restructure external debt, which is a key IMF ECF condition, leaving the country exposed to rollover risks and high interest burdens that leads to debt unsustainability. On inflation and monetary instability, Ngoma maintains that “discretionary monetary policy has often accommodated fiscal excesses, fuelling inflation of over 30% and undermining the kwacha’s credibility to fully perform money functions — medium of exchange, store of value and unit of account”. “The Reserve Bank of Malawi has lacked the operational independence and intrinsic rule-based constraints to anchor expectations and to dispel political interference to pursue pure monetary decisions,” he said. He touches on weak programme implementation, observing that previous ECF under Chakwera’s watch collapsed after failing to meet review milestones — as only US$35 million of the pledged US$175 million was disbursed while “structural reforms under ECF have been slow, fragmented, and politically vulnerable”. In insisting on CBA as the best path forward for Malawi, Ngoma breaks it as follows: 1. Rule-based monetary discipline: A CBA will legally bind the central bank to issue domestic currency only when backed by foreign reserves, eliminating discretionary money creation due to political pressures to fund deficits. This enforces hard budget constraints and prevents inflationary financing of deficits. This will result in a 2% inflation down from high 30% since only market forces will determine money supply. 2. Exchange rate credibility: The kwacha would be pegged to a stable anchor currency (e.g., US$ or ZAR or Euro), restoring investor and public confidence — underlining that predictable forex policy attracts FDI, lowers transaction costs, and supports trade integration with the rest of the world. 3. Automatic reserve adequacy: Under a CBA, reserve accumulation becomes a prerequisite for monetary expansion, aligning incentives across fiscal and external sectors. This is my favourite solution to eliminate constant and perennial Malawi BoP disequilibrium. 4. Institutional credibility: A well-designed Currency Board Act, with legal safeguards and operational transparency, will signal irreversible commitment to economic reforms in Malawi. It will anchor expectations, discipline fiscal behaviour, and will reduce political interference in monetary affairs — a constant complaint by RBM staff that they fail to adhere to sound monetary policies because of political interferences. 5. Platform for industrialisation: Stable macro fundamentals (low inflation, predictable FX, fiscal discipline, low interest rates, unlimited kwacha convertibility) create the enabling environment for long-term investment and investor confidence. Malawi can then layer industrial policy, sovereign wealth fund architecture, and public investment management atop a credible monetary fou Strategic next steps for Malawi * Legislate the Currency Board Act with clear reserve coverage rules, governance structures, and audit mechanisms to replace ECF permanently; * Simulate macro indicators under CBA: reserve adequacy, shock absorption, and fiscal sustainability; * Select and integrate digital computer systems for reserve tracking, FX operations, and governance dashboards; * Model phased transition from discretionary regime to CBA, including donor-backed FX buffers (IPF-DDO) and modular legal clauses. “Without first fixing the Kwacha and perpetuating the ECF program that has operated since 1979 to no avail, we will be recycling failed economic policies that brought us here in the ditch,” says Ngoma. On his return from Washington D.C., where he attended Spring Meetings by the World Bank Group and the IMF, newly appointed Minister of Finance, Economic Planning & Development, Joseph Mwanamvekha assured the nation that there will be no devaluation of the Kwacha having secured substantial international support in the US. The Minister revealed that the World Bank has provided US$45 million for emergency food assistance targeting four million Malawians, while the African Development Bank has also pledged additional support — with the IMF expected to visit Malawi in the first week of November to assist in efforts to stabilise the economy. Mwanamvekha also announced that the Chinese government has forgiven Malawi’s US$20 million debt and granted an additional US$3 million to support the country — while on its part, the government is cutting expenditures, reforming policies, and restructuring debt to ensure fiscal sustainability. The government also reported that the International Finance Corporation (IFC), the private sector arm of the World Bank Group, reaffirmed its continued support for the realisation of the Mpatamanga Hydropower Project in Neno District. Mwanamvekha delegation met the IFC led by vice-president for Africa, Ethiopis Tafara at the conclusion of the Spring Meetings where Tafara is reported to have reiterated IFC’s strong partnership with plans to undertake a private sector diagnostic study focusing on agriculture, tourism, and mining key sectors for Malawi’s economic transformation. Malawi Government’s key priorities, which Mwanamvekha highlighted, include five immediate priorities — food, fertiliser, foreign exchange, fuel, and pharmaceuticals aimed at addressing the needs of the general population. In his meeting with Mwanamveka, World Bank Group’s regional vice-president for the for Eastern and Southern Africa, Ndiame Diop pledged the Bank’s continued support towards advancing Malawi’s development and economic reform agenda. Such support aid, as observed by several economic experts, lead Malawi to over-reliance on the donors — with Ngoma maintaining that such programmes with conditions and reform promises, but enforcement by the government administration “is weak and without domestic institutional discipline”.
