Domestic financing has shifted from the Reserve Bank of Malawi (RBM) onto commercial banks and non-bank sectors, which include insurance firms, discount houses and pension funds.

Noting that there has been an increase in government’s borrowing from the above, World Bank has acknowledged that this form of financing is less inflationary than RBM but has said this may lead to increasing interest rates. “This may potentially crowd out the private sector investment” said World Bank’s Country economist, Priscilla Kondoole who also added that the high interest rates would hinder government’s expenditure on social and productive sectors.

In August 2018, International Monetary Fund had advised against government’s ‘unsustainable borrowing’, while in October 2018, Indian High Commissioner urged Malawi to desist from excess borrowing. As government turns to domestic financing, perhaps that is the solution, since parliament refused to cap interest rates, therefore the local borrowers are likely to benefit from any interest rates charged.