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					Reserve Bank of Malawi
Board of Directors
 st
31 December 2003

Dr. E.E Ngalande:        Chairman

Mrs M. Nkosi

Mrs P. Kankhwende

Mr. P.E Chilambe

Mr. K. Kaphale

Mr C.L Mphande

Mr. R. Mangani




                                    2
      Contents                                                                                                               Page

1.         Operations and Performance of the Reserve Bank of Malawi ..................................... 4

2.         Economic and Financial Developments in 2003 ......................................................... 34

     2.1      The world Economy ...................................................................................................... 34

3.         The Malawi Economy Overview in 2003 ....................................................................... 37

     3.1      Production and Prices .................................................................................................. 38
     3.2      Balance of Payments ................................................................................................... 41
     3.3      External Debt Situation in 2003 .................................................................................... 42
     3.4      Public Finance .............................................................................................................. 44
     3.5      Money and Credit ......................................................................................................... 45

4.         Prospects for the Year 2004. ......................................................................................... 54

5.         Statistical Annex Section .............................................................................................. 55




                                                                                                                                            3
1.     Operations and Performance of the Reserve Bank of Malawi
1.1    Staff Appointments and Transfers

In March 2003, Mr. Charles Chuka, General Manager, Economic Services resigned
from the services of the Bank. Consequently, Dr. Wilson Banda was appointed Acting
General Manager, Economic Services. Further, Mr. Tobias Chinkhwangwa, Director
was transferred from Administration to Financial Market Operations. Ms Meg
Kajiyanike was appointed Director Administration. Messrs William Matambo and
Samuel Malitoni were confirmed as Chief Accountant and General Counsel,
respectively. In addition, Mr Efford Goneka was appointed Acting Director, Research
and Statistics while Mr. Moza Zeleza was appointed Acting Deputy General Manager,
MALSWITCH in March 2003.

In September 2003, the following members of staff were confirmed from their Acting
positions: Dr. Wilson Banda as General Manager, Economic Services; Mr. Moza
Zeleza as Deputy General Manager, MALSWITCH and Mr Efford Goneka as Director,
Research and Statistics.

In October 2003, Major James Nyirenda, Chief of Protective Services, went on unpaid
study leave and Major Godfrey Guwa was appointed Acting Chief of Protective
Services.

In November 2003, Mr Sauko Chilongo was appointed Director, Special Duties.

1.2 Staff Training

Continuing with its staff development program, the Bank awarded scholarships to a
number of people to pursue Masters degree programmes. Consequently, Messrs Ken
Khoswe, Mark Lungu, Allan Konzamkamwa, Geoffrey Ndalama, Denford Buleya,
Samuel Senzani and Mtisunge Kanjakaya are pursuing studies in their different areas
of specialisation.

Meanwhile, Messrs Chitani Chigumula, Duncan Mphande and Ian Chingwalu returned
home having successfully completed their Masters programs. Messrs Elija Chirwa and
Nedson Malala are continuing with their Masters studies.




                                                                                  4
1.3     Registrar of Local Registered Stocks

The Reserve Bank of Malawi being the registrar of Local Registered Stocks converted
K437.0 million worth of stocks on behalf of the Malawi government in 2003 compared
to no conversion in 2002. A part from the conversion a total of K24.3 million were
redeemed during the year of 2003

                            Local Registered Stocks (2003)
Date Issued Nominal Value     New Issue       Conversion   Coupon Rate (%)   Maturity Year
               (K'm)            (K'm)           (K'm)


29 August           437,000               -      437,000                40           2006

As at end December 2003, total outstanding LRS amounted to K3,751.7 million, some
K25.7 million lower than K3,777.4 million recorded as at end December 2002. Of the
total amount, holdings by the Reserve Bank accounted for K1,126.3 million.
Commercial banks and other financial institutions amounted to K1,835.0 million and
K710.3 million, respectively.

1.4      Exchange Control
Malawi continues to maintain controls on the capital account. As part of liberalization of
the current account, Authorized Dealer Banks (ADBs) can open Foreign Currency
Denominated Accounts (FCDAs) for residents of Malawi without referring to Exchange
Control. Currently, FCDA holders can retain up to 60.0 percent of their foreign
exchange receipts while 40.0 percent is converted immediately into Malawi Kwacha at
the ruling exchange rate quoted by the receiving bank. Diplomatic, international and
non-governmental organizations operating FCDAs are exempt from the foreign
exchange conversion/retention requirement. There is no restriction on the period over
which balances in FCDAs may be retained.

1.5   Financial Results
During 2003, total liabilities (and therefore assets) of the Reserve Bank of Malawi
marginally rose to K35,679.0 million from K34,461.0 million in 2002.




                                                                                             5
RESERVE BANK OF MALAWI
ANNUAL FINANCIAL STATEMENTS
For the year ended 31 December 2003


Index                                                                                                                              Page


Statement of directors‟ responsibilities ......................................................................................... 7
Report of independent auditors .................................................................................................... 9
Income Statement ...................................................................................................................... 10
Balance Sheet ............................................................................................................................ 11
Statement of changes in net amount attributable to/(from) shareholder ..................................... 13
Cash Flow Statement ................................................................................................................. 14
Notes to the Annual Financial Statements .................................................................................. 15
Detailed analysis of income ............................................................................................ Appndix 1
Detailed analysis of other interest payable and general and administration expenses . Appendix 2




                                                                                                                                           6
RESERVE BANK OF MALAWI
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
For the year ended 31 December 2003

INTRODUCTION

The directors present the Bank‟s Annual Financial Statements for the year ended 31
December 2003.

This report addresses the performance of the Reserve Bank of Malawi during the year
under review.

These financial statements have been prepared on a going concern basis taking
cognisance of the unique aspects relating to some of its functions as stipulated under
the Reserve Bank of Malawi Act, 1989 as well as its relationship with the Government
of Malawi.

The annual financial statements set out in this report have been prepared by
management in accordance with International Financial Reporting Standards in all
material respects. They include full and responsible disclosure and are based on
appropriate accounting policies which have been applied consistently, except where
specifically indicated, and which are supported by reasonable and prudent judgments
and estimates. The integrity and objectivity of the data in these financial statements
are Management‟s responsibility. Management is responsible for ensuring that all
information in this report is not inconsistent with the financial statements.

These financial statements have been audited by independent auditors, Deloitte
(Malawi) and Deloitte & Touche (South Africa), who were given unrestricted access to
all financial records and related data, including minutes of the meetings of the Board
and the Board Audit Committees.

NATURE OF BUSINESS

The Reserve Bank of Malawi is the central bank of the Republic of Malawi, created and
regulated by the Reserve Bank of Malawi Act, 1989. The principal objectives of the
Reserve Bank of Malawi are: (a) to issue legal tender currency in Malawi (b) to act as
banker and adviser to the Government (c) to maintain external reserves so as to
safeguard the international value of the currency (d) to implement measures designed
to influence the money supply and the availability of credit, interest rates and exchange
rates with the view to promoting economic growth, employment, stability in prices and
a sustainable balance of payments position (e) to promote a sound financial structure
in Malawi including payments systems, clearing systems and adequate financial
services (f) promote a money and capital market in Malawi (g) to act as lender of last
resort to the banking system (h) to supervise banks and other financial institutions (i) to
collect economic data of the financial and other sectors for research and policy
purposes and (j) to promote development in Malawi.




                                                                                         7
THE ROLE OF THE BOARD OF DIRECTORS

The Board of Directors is responsible for ensuring that management fulfills its
responsibilities for financial reporting and internal control and exercises this
responsibility through the Board Audit Committee. The Board Audit Committee is
composed of members who are neither officers nor employees of the Bank and who
have the required mix of skills, with at least one member being a financial expert. The
Committee is therefore qualified to review the Bank‟s annual financial statements and
to recommend their approval by the Board of Directors. The Committee is mandated
by its Charter to meet management, and internal and external auditors.

The Board Audit Committee evaluates the independence of the external auditors and
reviews all services provided by them. The Committee has a duty to review the
adoption of, and changes in accounting principles and procedures that have a material
effect on the financial statements and to review and assess key management
proposals including risk management issues and makes recommendations on the
same for approval. The Board considers and where necessary, approves the Board
Audit Committee‟s recommendations.

The annual financial statements have been approved by the Board on 25 March 2004
and are signed on its behalf by:




__________________________                      _______________________
Governor and Chairman of the Board              Chairperson, Board Audit Committee




                                                                                     8
REPORT OF THE INDEPENDENT AUDITORS

TO THE MEMBER OF THE RESERVE BANK OF MALAWI

We have audited the annual financial statements of the Reserve Bank of Malawi. The
annual financial statements are the responsibility of the bank's directors. Our
responsibility is to express an opinion on the annual financial statements based on our
audit.

We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit to obtain reasonable
assurance that the annual financial statements are free from material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the annual financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statements presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the annual financial statements are properly drawn up in accordance
with the provisions of the Reserve Bank of Malawi Act, 1989, and in conformity with
International Financial Reporting Standards, so as to give, in all material respects, a
true and fair view of the financial position of the Bank as at 31 December 2003 and of
the results of the operations and cash flows for the financial year ended on that date.




Deloitte                                Deloitte & Touche
Lilongwe, Malawi                        Pretoria, South Africa
25 March 2004                           25 March 2004




                                                                                     9
RESERVE BANK OF MALAWI
INCOME STATEMENT
For the year ended 31 December 2003

                                                                    2003      2002
                                                                    K'm       K'm
Income                                                             2,461     1,973
     Banking operations                                            4,692     2,582
     Money market operations                                         244       323
     Interest on foreign exchange operations                          34        35
     Property                                                         68        87
     Sundry

        Total income                                               7,499     5,000

Expenses
     Interest payable on money market operations                   2,832     4,497
     Other interest payable                                          179       129
     General and administration expenses                           2,728     2,323
     Depreciation of property and equipment                          359       307
     Provision for bad and doubtful debts                            343         -

        Total expenses                                             6,441     7,256

Profit/(loss) for the year before foreign exchange revaluations    1,058    (2,256)

Foreign Exchange Revaluations
Loss on revaluation of IMF facilities                             (3,280)   (2,517)
Profit on revaluation of other foreign exchange balances            2,652     3,623

Total foreign exchange revaluations                                (628)      1,106
Net profit/ (loss) for the year                                      430    (1,150)




                                                                                 10
RESERVE BANK OF MALAWI
BALANCE SHEET
31December 2003


                                                                  As restated
                                                Notes     2003           2002
                                                           K'm            K'm

CAPITAL, NET AMOUNT ATTRIBUTABLE
TO/(FROM) SHAREHOLDER AND
RESERVES
Capital                                                     306           306
General Reserve Fund                                        265             -
Revaluation Reserve                                       1,695         1,695
Promissory Note Reserve                                       -             9
Special Account                                           3,139         3,767
Promissory notes due from Government                6   (7,033)       (7,835)

Net amount attributable to/(from) Shareholder           (1,628)       (2,058)

LIABILITIES
Allocation of special drawing rights                7    1,771         1,300
Borrowings                                          8   11,094         8,210
Notes and coin in circulation                       9    9,288         7,065
Government deposits                                10    1,657           423
Bankers' deposits                                  11    4,455         3,617
Balances with foreign banks                        12        -         4,357
Other deposits                                     13    4,472         3,350
Other liabilities                                          171           365
Reserve Bank of Malawi Bills                       14    2,771         5,774

Total liabilities                                       35,679        34,461

TOTAL CAPITAL, NET AMOUNT
ATTRIBUTABLE
TO/(FROM) SHAREHOLDER, RESERVES
AND LIABILITIES                                         34,051        32,403




                                                                           11
Reserve Bank of Malawi
Balance Sheet (continued)
31 December 2003

                                           Notes             2003             2002
                                                              K'm              K'm
Assets

Property and Equipment                        15            3,724            3,784
Special Drawing Rights                                         51                8
Investment in Malawi Government:
   Promissory notes                           16              111              111
   Local registered stock                     17            1,309            1,433
   Treasury bills                             17           10,852            8,474
Loans and advances:
   Special loans to Malawi Government         18                -              441
   Advances to Malawi Government              19            3,320            2,827
Liquid assets:
   Balances with foreign banks                20           12,720           13,888
   Other liquid assets                                        228              167
Other assets                                  21            1,736            1,270

TOTAL ASSETS                                               34,051           32,403

The annual financial statements were authorised for issue by the Board of Directors
on 25 March 2004 and are signed on its behalf by:




Dr E.E Ngalande:                           Governor & Chairman of the Board




Mr E. J Kambalame:                         General Manager, Operations




Mrs P. Kankhwende:                         Chairperson, Board Audit Committee



                                                                                 12
RESERVE BANK OF MALAWI
STATEMENT OF CHANGES IN NET AMOUNT ATTRIBUTABLE TO/(FROM)
SHAREHOLDER
31 December 2003
                                     General Revaluati Promissory                    Promissory
                                     Reserve    on        Note    Special Retained Notes Due from
                              Capital Fund Reserve Reserve Account Profit           Govenment.      Total
                               K‟m    K‟m      K‟m        K‟m      K‟m      K‟m         K‟m         K‟m

For the year ended
31 December 2002
At the beginning
of the year                      306       36     921          9    2,661        -        (5,615) (1,682)
Transfer to retained profit        -     (36)       -          -        -       36              -       -
Transfer to income
statement on disposal of
property                             -      -     (17)          -       -         -             -    (17)
Net loss for the year                -      -        -          -       -   (1,150)             - (1,150)
Statutory transfer of net
foreign exchange
revaluations                         -      -        -          -   1,106   (1,106)             -           -
Promissory Notes from
Malawi Government                    -      -        -          -       -    2,220        (2,220)           -
Revaluation surplus
arising in the year                         -       -        791        -         -             -
At the end of the year           306        -   1,695          9    3,767         -       (7,835) (2,058)

For the year ended
31 December 2003
At the beginning of the
year                          306           -   1,695          9    3,767         -       (7,835) (2,058)
Transfers to                    -
promissory Note due
from Government                             -        -        -9        -        -             9        -
Net profit for the year          -          -        -         -        -      430             -      430
Statutory transfer of
net foreign
exchange revaluations            -          -        -          -   (628)      628              -           -
Statutory transfer to
General         Reserve
Fund                                        -     265           -       -                    -265           -
Balance of profit for
the year appropriated
for Redemption of
promissory notes                            -       -          -        -        -          (793)     793
At the end of the year        306                 265      1,695        -    3,139              - (7,033)

The Capital of the Bank has been fully subscribed and paid up by the Government in
accordance with Section 5 of the Reserve Bank of Malawi Act, 1989.




                                                                                                       13
RESERVE BANK OF MALAWI
CASH FLOW STATEMENT
For the year ended 31 December 2003

                                                         Notes     2003      2002
                                                                  (K’m)     (K’m)
Cash flows from operating activities
Interest and commission receipts                                   7,397     4,877
Interest payments                                                (3,011)   (4,626)
Cash payments to employees and suppliers                         (3,075)   (2,277)

Operating profit/(loss)      before       changes   in
operating assets                                          25      1,311    -2,026

Increase in operating assets:
Deposits held for regulatory or monetary control
purposes                                                         (2,254)   (9,601)
Funds advanced to Government                                        (52)     2,439
(Increase)/decrease in operating assets
·     Other short-term negotiable securities/assets               (466)     (195)
·     Holding of Special Drawing Rights                            (43)        49
(Decrease)/increase in operating liabilities:
·     Deposits from customers                                    (1,163)    5,584
·     Other current liabilities                                    (194)      140
·     Net cash from other operating activities                       102       91
·     Securities held for regulatory or monetary
      control purposes                                           (3,003)   (2,330)
·     Notes and coin in circulation                                2,223     2,072

Net cash flow from operating activities                          (3,539)   (3,777)

Cash flow from investing activities
Purchase of property and equipment                                (311)     (520)
Proceeds from sale of property and equipment                         16        25
Net cash flow from investing activities                           (295)     (495)

Cash flow from financing activities
Proceeds of long-term borrowings                                  3,355     3,689
Effects of exchange rate changes on liquid assets                 (628)     1,106
Net cash flow from financing activities                           2,727     4,795

Net (decrease)/ increase in liquid assets                        (1,107)      523

Liquid assets at the beginning of year                           14,055    13,532

Liquid assets at the end of the year                             12,948    14,055



                                                                                14
RESERVE BANK OF MALAWI
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
31 December 2003

1.     COMPLIANCE        WITH      INTERNATIONAL          FINANCIAL       REPORTING
       STANDARDS

The annual financial statements have been drawn up in accordance with International
Financial Reporting Standards and have been prepared on a basis consistent with the
prior year, except as indicated in notes 3.3 and 5 where certain disclosure and
classification changes have been made.

2.     NATURE OF BUSINESS

The main business of the Bank, which is governed by the requirements of the Reserve
Bank of Malawi Act, 1989, is central banking and its related activities. The Bank‟s
principal place of business is Plot Number 1/16, Bwaila, Lilongwe, Malawi. The Bank
had 772 (2002: 794) employees at the end of the year.

3.     ACCOUNTING POLICIES

The principal accounting policies of the bank, which are set out below, have been
consistently followed in all material respects.

       3.1     Accounting Convention
               These financial statements are expressed in terms of the historical
               cost convention with the exception of certain property and financial
               instruments, which are included at valuation. No other procedures are
               adopted to reflect the impact on the annual financial statements of
               specific price changes or changes in the general level of prices.

       3.2     Transactions on behalf of the Government of Malawi
               Transactions on behalf of the Government of Malawi and assets and
               liabilities arising out of these transactions are not reflected in the
               annual financial statements as the Bank is concerned in such
               transactions only as an agent.

       3.3     Property and Equipment

               Land and building
               Land and building are accounted for under the allowed treatment in
               IAS 16, Property, Plant and Equipment. Subsequent to initial
               recognition as an asset, land and buildings are carried at a revalued
               amount, being their fair value at the date of the revaluation less any
               subsequent accumulated depreciation. Surpluses on revaluation are
               transferred to a non-distributable reserve. Deficits on revaluations are
               charged to income except to the extent that the deficit relates to a prior
               surplus transferred to the non-distributable revaluation reserve.
               Previously in the year of disposal of a property, an adjustment to the
               revaluation surplus was made from the revaluation reserve, while the

                                                                                      15
      contra, the realised revaluation surplus on disposal of the property,
      was posted to the income statement. In order to comply with IAS 16
      fully, the Board approved a change in the accounting policy. The new
      policy states that on disposal of property, the realised revaluation
      surplus shall be posted directly to reserves, rather than through the
      income statement. In view of the immaterial amount of this figure in the
      prior year (K17m) no adjustment has been made to reflect the change
      in accounting policy. Office and residential properties are amortised on
      a straight-line basis at rates between 2.0 percent and 8.3 percent per
      annum.

      Computer Hardware and Software
      These assets are carried at a cost less accumulated depreciation, and
      expenditure is amortised over a three-year period on a straight-line
      basis.

      Furniture, Equipment and Motor Vehicles
      These assets are carried at a cost less accumulated depreciation, and
      expenditure is amortised on the reducing balance basis over the
      anticipated useful lives of the assets at the following annual rates:

      Furniture:     10%
      Equipment:     25%
      Motor Vehicle: 25%

3.4   Financial Instruments

      Measurement
      Financial instruments are initially measured at cost, which includes
      transaction costs, when the related contractual rights or obligations
      exist. Subsequent to initial recognition these instruments are
      measured as set below:

      Investment
      Investment in securities are recognised at trade (the date an entity
      commits itself to purchase or sell a financial instrument). At
      subsequent reporting dates, debt securities that the bank has
      originated are measured at amortised cost, less any impairment losses
      recognised to reflect irrecoverable amounts.

      Malawi Government Promissory Notes, Loans and Advances
      Malawi Government Promissory Notes, loans and advances originated
      by the bank are stated at amortised cost less provision for doubtful
      debts.

      Liquid Assets
      Liquid assets are measured at fair value, based on the relevant
      exchange rates at balance sheet date.




                                                                           16
      Financial Liabilities
      Financial liabilities are recognised at amortised cost, comprising
      original debt less principal payments and amortisation.

      Gains and Losses on Subsequent Measurements
      Gains and losses from a change in the fair value of financial
      instruments are included in net profit or loss in the period in which the
      change arises. There are no instruments classified as available.

3.5   Gold
      Gold purchased at periodic auctions of the International Monetary
      Fund at the official rate is accounted for at cost and is included in the
      balance sheet under the heading “Other liquid assets”.

3.6   Foreign Currencies
      Assets and liabilities in foreign currencies are translated to Malawi
      Kwacha at rates of exchange approximating to those ruling at the
      balances sheet date.

      The official rate of exchange of the Malawi Kwacha against the Special
      Drawing Right is adjusted annually on 30 April. For the purposes of
      translation of balances denomited in Special Drawing Rights, the
      exchange rate is calculated by reference to the balance sheet date
      rate of exchange between the US dollar and the Special Drawing
      Right.

      Under the terms of Section 54(5) of the Reserve Bank of Malawi Act,
      1989, those gains or losses that relate to revaluations or devaluations
      of the Malawi currency are assumed by Government by the issue or
      redemption of promissory notes. In the event that there are insufficient
      promissory notes to be redeemed, surplus gains are credited to a
      special account to be offset against future devaluations/revaluation
      losses.

      Exchange differences dealt with under the terms of section 54(5) of
      the Reserve Bank of Malawi Act are excluded from the calculation of
      profit appropriated to the General Reserve Fund and Promissory Note
      Reserve.

      Exchange differences arising from investment decisions made by the
      Reserve Bank of Malawi are dealt with in the income statement in the
      year in which they arise.

3.7   General Reserve Fund
      In accordance with the terms of section 54(2) and (3) of the Reserve
      Bank of Malawi Act 1989, 25 percent of distributable profit or K1
      million, which ever is higher, is allocated to the General Reserve Fund,
      until it reaches 10 percent of the amount of currency in circulation at
      the financial year end. With the approval of the Minister of Finance
      further allocations may be made to the General Reserve Fund. In the

                                                                            17
       event of a loss being incurred by the Bank, such a loss is deducted
       from the General Reserve Fund until the Fund is exhausted at which
       point the government will cover the remaining loss.

3.8    Special Account
       In accordance with the terms of sections 54(5) of the Reserve Bank of
       Malawi Act 1989, results from any devaluation or revaluation of the
       Malawi currency shall be posted directly into a special account. In
       order to fully comply with International Financial Reporting Standards,
       these exchange differences pass through the income statement before
       being transferred to the special account.

3.9    Promissory Note Reserve
       In accordance with the terms of sections 54(4) of the Reserve Bank of
       Malawi Act 1989, 10 percent of the net profit or K1 million, which ever
       is higher, is credited to a special account for the redemption of
       outstanding Promissory Notes issued by government to cover losses
       from currency devaluations.

3.10   Cost of new Notes and Coinage
       The cost of new notes is charged to the income statement at the time
       of issue. The cost of new notes received but not issued is shown as
       part of other assets. The cost of new coinage (issued and unissued) is
       charged to the income statement at the time of purchase.

3.11   Impairment
       At each balance sheet date, the Bank reviews the carrying amounts of
       its tangible assets to determine whether there is any indication that
       those assets have suffered an impairment loss. If any such indication
       exists, the recoverable amount of the asset is estimated in order to
       determine the extent of the impairment loss.

       If the recoverable amount of an asset is estimated to be less than its
       carrying amount, the carrying amount of asset is reduced to its
       recoverable amount. Impairment losses are recognised as an expense
       immediately, unless the relevant asset is land or buildings, other than
       investment property, carried at a revalued amount, in which case the
       impairment loss is treated as a revaluation decrease.

       If an impairment loss subsequently reverses, the carrying amount of
       the asset is increased to the revised estimate of its recoverable
       amount, but only to the extent that the increased carrying amount does
       not exceed the carrying amount that would have been determined had
       no impairment loss been recognised for the asset in prior years. A
       reversal of an impairment loss is recognised as income immediately,
       unless the relevant asset is carried at a revalued amount, in which
       case the reversal of the impairment loss is treated as a revaluation
       increase.




                                                                           18
     3.12    Related Parties Transactions
             The bank transacts a proportion of its business on an arm‟s length
             basis with the government and other government related bodies.

     3.13    Revenue Recognition
             Interest income is accrued on a time basis, by reference to the
             principal outstanding and at the interest rate applicable.

             All other income from fees and rent is recognised on the accrual basis
             in accordance with the substance of the relevant agreements.

     3.14    Loans from the International Monetary Fund (IMF)
             The Bank receives preferential loans from the IMF. These loans have
             been accounted for under IAS 20, Accounting for Government Grants
             and Disclosure of Government Assistance, and are shown at cost plus
             accrued interest. The denomination of transactions with the IMF, is
             Special Drawing Rights. Gains and losses on translation of assets and
             liabilities denominated in SDRs are included in the income statement.

     3.15    Retirement Benefit Costs.
             Payment to retirement benefit plans are charged as an expense as
             they fall due. The Bank‟s pension scheme, which is a separate legal
             entity, guarantees a minimum pension and       under    International
             Financial Reporting Standards renders the fund to be considered as a
             Defined Benefit fund (refer note 27).

4.   FINANCIAL INSTRUMENTS-RISK MANAGEMENT
     Through its normal operations, the Bank is exposed to a number of risks, the
     most significant of which are credit, interest rate, foreign exchange and
     operational risks. Responsibility for management of these risks is vested in the
     Bank‟s senior management.

     4.1     Credit Risk
             Credit risk is the probability that a financial obligation will not be
             honoured by counterparty, and exists in lending and other trading
             activities. The risk covers both balance sheet and off balance sheet
             activities.

             The Bank mitigates credit risk by proactively managing it. Lending and
             other facilities are granted only if the level of risk is acceptable. This is
             achieved by thoroughly evaluating customers‟ credit worthiness before
             facilities are granted. Even after the facilities are granted, the Bank
             continues to monitor customers‟ performance so that timely corrective
             action can be taken should circumstances demand.

     4.2     Interest Rate Risk
             Interest rate risk is generally referred to as the exposure of the Bank‟s
             net interest income to adverse movements in interest rates as a result
             of assets and liabilities re-pricing at different times and using different
             bases. The risk therefore has a direct impact on the bank‟s net interest

                                                                                       19
                margin. The Bank reviews the re-pricing gap periodically and
                appropriate action is taken to reduce the effect of the risk.

        4.3     Foreign Exchange Risk
                Foreign exchange risk relates to the exposure of the Bank‟s exchange
                position to adverse movements in foreign exchange rates. These
                movements may impact on the Bank‟s future cash flows. The Bank
                manages this risk by adhering to the exposure limits set internally.

        4.4     Operational Risk
                This is the risk of losses arising from the operations of the Bank.
                Losses can occur due to system malfunctioning or failure to follow
                procedures. Operational risk manifests itself in losses, customer
                complaints and claims. To reduce the risk, management continuously
                reviews the controls and procedures in place. In addition, the Internal
                Audit-department periodically determines whether the controls in place
                are commensurate with the risks involved. Disaster recovery
                arrangements are also in place so that business can continue should
                major disruptions occur.


5.      RESTATEMENT OF PRIOR PERIODS

The Bank has an obligation to pay profits, after statutory transfers to the General
Reserve Fund and the Promissory Note Reserve, to the Government of Malawi. The
Government of Malawi has an obligation to reimburse the Bank for the losses incurred
by the Bank. The net of the amounts previously recognised by the Bank as total
capital and reserves and as assets for promissory notes, by which Government
committed to reimburse out of future profits the losses incurred by the Bank, therefore
meets the definition of a financial asset or liability in the Bank in terms of IAS 32
Financial Instruments: Disclosure and Presentation. This amount is disclosed as the
net amount attributable to or from shareholder.

As a result of the above, the amount of K5,777 million previously classified as capital
and reserves in the balance sheet and the promissory note amount of K7,835 million
previously classified as an asset have been reclassified as a net amount attributable
from shareholder. Net income in the current period and the prior period has not been
affected by this adjustment. This is because the net of all other income and expense
items in the Bank is recognised as the movement in the net amount attributable to or
from shareholder. Net income after this movement is therefore nil in all periods.




                                                                                    20
6.      PROMISSORY NOTES DUE FROM GOVERNMENT
                                              Notes             2003              2002
                                                                (K'm)             (K'm)

31December 1999                                   (i)          1,126              1,126
31December 2000                                  (ii)            801                801
31December 2001                                 (iii)          2,695              2,695
1July 2002                                      (iv)             993                993
31December 2002                                  (v)           2,220              2,220

Promissory Notes issued by Government                          7,835              7,835
Transfer from Promissory Note Reserve                             (9)                 -
Balance of profit for the year appropriated
for redemption of Promissory Notes                              (793)                  -

                                                               7,033              7,835

The promissory notes have been issued by the Government of Malawi in accordance
with section 54(2b) of the Reserve Bank of Malawi Act, 1989, and consists of:

            i)       A non-interest bearing promissory note of K1,126 million issued on
                     31 December 1999 by the Malawi Government in settlement of the
                     loss incurred by the Bank for the financial year ended 31
                     December 1999. This promissory note is denominated in Malawi
                     Kwacha and is redeemable from the future profits of the Bank
                     intended for appropriation to the Malawi Government.
            ii)      A non-interest bearing promissory note of K801 million issued by
                     the Malawi Government in settlement of the loss incurred by the
                     Bank for the financial year ended 31 December 2000. The note is
                     denominated in Malawi Kwacha and is redeemable from the future
                     profits of the Bank intended for appropriation to the Malawi
                     Government.
            iii)     A non-interest bearing promissory note of K2,695 million issued by
                     the Malawi Government in settlement of the loss incurred by the
                     Bank for the financial year ended 31 December 2001. The note is
                     denominated in Malawi Kwacha and is redeemable from the future
                     profits of the Bank intended for appropriation to the Malawi
                     Government
            iv)      Two non-interest bearing promissory notes of K693 million and
                     K330 million issued by the Government of Malawi on 1 July 2002
                     in respect of non-interest bearing Treasury Bill. These notes are
                     denominated in Malawi Kwacha and are redeemable from the
                     future profits of the Bank intended for appropriation to the Malawi
                     Government.
            v)       A non-interest bearing promissory note of K2,220 million issued by
                     the Malawi Government in settlement of the loss incurred by the
                     Bank for the financial year ended 31 December 2002. The note is

                                                                                     21
                     denominated in Malawi Kwacha and is redeemable from the future
                     profits of the Bank intended for appropriation to the Malawi
                     Government.

 7.      ALLOCATION OF SPECIAL DRAWING RIGHTS
The allocation of Special Drawing Rights, which are due to the IMF, represents
SDR11.0 million (K1,771 million) (2002: SDR11.0 million (K1,300 million) and bear
interest at an average rate of 4.3 percent per annum. The liability represents an
allocation and has no fixed repayment dates.

8.      BORROWING
                                                              2003                 2002
                                                              (K'm)                (K'm)

International Monetary Fund
IMF Emergency Assistance                                     2,799                2,048
Enhanced Structural Adjustment Facility (ESAF)               8,295                6,162
Total borrowing                                             11,094                8,210

Maturity
Falling due within one year                                  1,614                  958
Falling due after more than one year                         9,480                7,252
Total                                                       11,094                8,210

The IMF Emergency Assistance loan is denominated in Special Drawing Rights (SDR)
and bears interest at IMF floating rates. The loan is repayable in eight equal quarterly
instalments of SDR 2.2 million commencing in December 2005.

The ESAF loan, which is denominated in Special Drawing Rights, bears interest at 0.5
percent per annum. The loan is repayable in 68 monthly instalments of SDR0.8 million
and commenced in January 2003.

In accordance with IAS 20 these borrowings from the IMF have been accounted for as
preferential loans from a quasi government institution. As such, the loans are carried at
original cost plus accrued interest.

9.      NOTES AND COIN IN CIRCULATION
                                                               2003                2002
                                                               (K'm)               (K'm)

Notes                                                          9,180              6,970
Coin                                                             108                 95

Total notes and coin in circulation                            9,288              7,065




                                                                                      22
 10.    GOVERNMENT DEPOSITS
Under the provision of the Reserve Bank of Malawi Act, 1989, one of the principal
objectives of the Bank is to act as a banker and advisor to the Government. Acting in
this capacity, the Reserve Bank receives deposits, which represent all receipts
accruing to the government. The Bank also facilitates the operation of the Government
Credit Ceiling Authority (CCA) through the maintenance of holding accounts, which
eventually fund the operating accounts of the Government Ministries use at
commercial banks. No interest is payable on these deposits which are repayable on
demand.

 11.    BANKERS’ DEPOSITS
In the exercise of its powers under section 36 of the Reserve Bank of Malawi Act,
1989, the Bank requires all commercial banks to maintain a specified reserve with the
Central Bank at all times. No interest is payable on these deposits.

12.     BALANCES WITH FOREIGN BANKS
                                                              2003               2002
                                                              (K'm)             (K'm)
Citi Bank New York                                     (i)        -             2,614
HSBC Equator Bank plc                                 (ii)        -             1,743

Total balances with foreign banks                                    -          4,357

(i)      The loan was fully repaid in accordance with the conditions of the loan by 30
         May 2003.
(ii)     The loan was fully repaid in accordance with the conditions of the loan by 4
         June 2003

13.     OTHER DEPOSITS
                                                              2003                2002
                                                             (K'm)               (K'm)
Deposits from foreign institutions                           1,864               2,145
Deposits from local institutions                             2,500                 963
Deposits from statutory corporations                           108                 242

Total other deposits                                         4,472               3,350

Other deposits are repayable on demand and bear no interest.

14.    RESERVE BANK OF MALAWI BILLS
Reserve Bank of Malawi Bills are due to mature as follows:
                                                              2003                2002
                                                              (K'm)               (K'm)

Within three months                                           2,771              5,774

The Bills were issued by the Bank in its own right for monetary policy control, in
accordance with section 34 of the Reserve Bank of Malawi Act 1989.

                                                                                     23
The interest payable on the Reserve Bank of Malawi Bills ranges from 33 percent to
34.5 percent per annum

15.     PROPERTY AND EQUIPMENT
                                            Computer      Furniture,          Total
                                Land &     hardware &    equipment,
                               Buildings     software motor vehicles
                                 (K'm)          (K'm)          (K'm)   2003 (K'm)   2002 (K'm)
COST OR VALUATION
At the beginning of the year    2,281            671          1,646       4,598        3,464
Additions                         22             103            186         311          520
Disposals                          -               -            (29)        (29)         (50)
Impairment loss                    -               -               -           -         (41)
Transfers from asset
prepaid accounts                   -                -              -            -         10
Revaluation                        -                -              -            -        695

At the end of the year          2,303            774          1,803       4,880        4,598

DEPRECIATION
At the beginning of the year       -             288           526          814           628
Charge for the year               57             137           165          359           307
Disposals                          -               -           (17)         (17)         (250
Revaluation reversal               -               -              -            -          (96)

At the end of the year            57             425            674       1,156          814

NET BOOK VALUE
At the end of the year          2,246            349          1,129       3,724        3,784

Valuation of land and buildings are performed every three years by independent
valuers.
Land and buildings were revalued in December 2002 on an open market value basis
as follows:
            a)     Reserve Bank Headquarters, Lilongwe, by SMN Property
                   Professional Valuers and Estate Managers, Chartered Surveyors
            b)     Residential properties by Knight Frank, Chartered Surveyors, and
                   SMN Property Professional valuers and Estate Managers,
                   Chartered Surveyors.
            c)     Recreational Properties by Turner and Townsend, Chartered
                   Surveyors
            d)     Old and new Reserve Bank Branches in Blantyre by SNM
                   Property Professional Valuers and Estate Managers, Chartered
                   Surveyors.




                                                                                           24
16.         MALAWI GOVERNMENT PROMISSORY NOTES
                                           Notes                   2003          2002
                                                                   (K'm)         (K'm)
31 December 1999                                           i)         40            40
31 December 2000                                          ii)         71            71

Balance at the end of the year                                       111           111

The promissory notes have been issued by the Government of Malawi in accordance
with section 54(2b) of the Reserve Bank of Malawi Act, 1989, and consist of:

      i)      A non-interest promissory note of K40 million issued on 31 December
              1999 by the Malawi Government in settlement of advances made by the
              bank in relation to the Small and Medium Enterprise Fund (SMEF). This
              promissory note is denominated in Malawi Kwacha and is redeemable on
              Demand by the Malawi Government.
      ii)     An Interest bearing promissory note of K71 million issued by the Malawi
              Government on 31 December 2000 in settlement of interest charged on
              1990 to 1992 Government loans. This promissory note is denominated in
              Malawi Kwacha and is redeemable on demand by the Malawi
              Government. It bears interest at the ruling bank rate.

17.      MALAWI GOVERNMENT LOCAL REGISTERED STOCK AND TREASURY
         BILLS
Local registered stocks are due to mature as follows:
                                                       2003  2002
                                                      (K'm) (K'm)
Within three months                                       3     -
Between three months and one year                         3     -
Between one year and five years                       1,302 1,433
Over five years                                           1     -

Total Local Registered Stock                                    1,309            1,433

These stocks are held by the bank to maturity, are carried at amortised cost and carry
an interest rate of between 38 percent and 40 percent per annum.

Treasury Bills are due to mature as follows:
                                                                  2003            2002
                                                                 (K'm)           (K'm)
Within three months                                              4,004               -
Between three months and one year                                6,848           8,474

Total Treasury Bills                                            10,852           8,474

These treasury bills are held by the bank as originated loans and are carried at
amortised cost. They carry an interest rate of 33.7 percent per annum.

                                                                                     25
18.     SPECIAL LOANS TO MALAWI GOVERNMENT

                                                      2003                          2002
                                                       K'm                           K'm
Loans from 1980-1989                                      -                          441


In the current year these loans were repaid through the issue of Treasury Bills.

19.      ADVANCES TO MALAWI GOVERNMENT
Under the terms of Section 40(4) of the Reserve Bank of Malawi Act, 1989, short-term
advances must be repaid within four months of the end of the Malawi Government‟s
financial year, which is 30 June 2004.

20.    BALANCES WITH FOREIGN BANKS
Balance with foreign banks are due to mature as follows:
                                                                2003                 2002
                                                               (K'm)                (K'm)
Within one month                                               3,547                4,784
Between one month and three months                             1,755                  527
Between three months and one year                                405                1,743
Over five years                                                7,013                6,834

Total balances with foreign banks                             12,720               13,888

Analysis of deposits by geographical location
Africa                                                         1,565                  914
Europe                                                         6,434                4,980
North America                                                  4,719                7,980
Asia                                                               2                    9
                                                              12,720               13,888

Balances with foreign banks carry an interest rate of between 0.8 percent and 3.5 per
annum.

21.     Other Assets
                                                                2003                2002
                                                               (K'm)               (K'm)
Staff loans and advances                                         371                 293
Prepayments                                                    1,300                 927
Recoverable expenditure                                          353                  20
Accrued interest                                                   6                   7
Stocks                                                            46                  23
                                                               2,076               1,270
Provision for doubtful debt                                    (340)                   -

Total other assets                                             1,736               1,270

                                                                                      26
Staff loans are issued to members of staff at concessionary rates. Although a fair value
calculation was performed to determine the impact of the concessionary rates no
adjustment has been made on grounds of materiality.

The directors consider the carrying amounts of other assets approximate to their fair
values.

22.      FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
All financial instrument are carried at fair value or amounts that approximate to fair
value.
The carrying amounts of Treasury Bills, loans and advances, liquid assets and
deposits approximate to fair value due to the short-term nature of these instruments

The carrying amount of Local Registered Stock approximates to fair value, as the
coupon rate is representative of the current market yield.

23.    CONTINGENT LIABILITIES AND OTHER COMMITMENTS
The Bank guarantees amounts on behalf of other local banks and companies
                                                 2003                              2002
                                                (K'm)                             (K'm)
Amounts guaranteed                                396                             4,959

These guarantees are unsecured

24.     CAPITAL COMMITMENTS

                                                   2003                           2002
                                                   (K'm)                          (K'm)
Authorised by the Board
Contracted                                           65                                 54
Not contracted                                        -                                 71

Total capital commitments                            65                             125

Capital commitments are to be financed from internal resources




                                                                                        27
25.     RECONCILIATION OF NET PROFIT/(LOSS) FOR THE YEAR TO
         OPERATING PROFIT/ (LOSS) BEFORE CHANGES IN OPERATING
         ASSETS.
                                            2003                2002
                                           (K'm)                (K'm)
Net profit/(loss) for the year               430              (1,150)
Adjustment for:
    Depreciation                             359                  307
    Property income                          (34)                (35)
    Sundry income                            (68)                (87)
    Foreign exchange revaluations            628              (1,106)
    Profit on disposal of assets              (3)                   -
    Impairment loss on property                 -                  41
    Other                                     (1)                   4
Operating profit/(loss) before
changes in operating assets                1,311              (2,026)

26.     TAXATION
The Bank is exempt from payment of income tax under Section 57 of the Reserve Bank
of Malawi Act, 1989.

27.     EMPLOYEE BENEFITS
The Reserve Bank of Malawi established a non-contributory Pension Fund with effect
from 1 January 1986. On 1 January 1997 the pension scheme was changed from non-
contributory to contributory. The Bank contributes 16.4% of each member‟s basic
pensionable salary while the eligible employees contribute 7.5% of their basic
pensionable salary. The pension granted to a retiring member shall be determined as
being the amount secured by the member on the Share Accounts at the date of
retirement, provided that such pension shall not be less than 1/55th of final average
emoluments multiplied by years of service as defined under the fund rules. The
actuarial valuation, carried out by Alexander Forbes Financial Services, at 31
December 2002, showed that the market value of plan assets was K456m
representing 131% of the benefits accrued to members. Although the actuarial
valuation indicated the fund to be in a surplus situation it has been past practice for the
surplus or portions of the surplus to be allocated directly to members based on
recommendations from the actuary.

The key assumptions used in determining the valuation are summarized below:

1.      Interest rate of 15% per annum will be earned by the fund over the long-term.
2.      General salary increases as a result of inflation have been provided for at 12%
        per annum.
3.      Interest rate of 4.5% per annum for pension valuation.
4.      Pre-retirement mortality is 56-62 years.
5.      Members would retire on attaining the pensionable age of 55.

The total charge to the income statement is K39.5m (2002: K29.8m) and this
represents contributions due and paid to the scheme by the Bank.

                                                                                        28
28.      Related Party Transactions
In the context of the Bank, related party transactions include any transactions made by
any of the following persons: -

       The Government of Malawi
       Government bodies
       The Governor and his Deputy
       General Managers of the Bank
       Senior Government Officers
       Members of the Board of Directors
       Cabinet Ministers and Head of State
       Spouses and children of the above categories

The transactions to be reported are those that affect the Bank in making financial and
operating decisions. Examples of such transactions include:-

       Finance (Loans)
       Preferential treatment on application of exchange control and licensing
        regulations
       Procurement and investment contracts
       Disposal of assets
       Guarantees and collaterals

The Bank undertakes to disclose the nature of related party relationships, types of
transactions, and the elements of the transactions necessary for the understanding of
the annual financial statements. For the year 2003, in the opinion of the directors, no
such transactions took place.
In the current year, the following transactions took place with Government

                                                                 2003            2002
                                                                (K'm)           (K'm)
Special loans to Malawi Government                                  -             441
Advances to Malawi Government                                   3,320           2,827
Accrued interest on advances to Malawi Government               2,407           1,912
Deposits from Government Institutions                         (1,657)           (423)
Deposits from statutory corporations                            (108)           (242)

29.      ECONOMIC FACTORS
Subsequent to 31 December 2003 and before the date of approval of these annual
financial statements, the exchange rate between the Malawi Kwacha and other major
trading currencies has changed as detailed below.

                               1 USD           1GBP          1EURO            1 SDR
 31 December 2003              108.57         193.34          136.57          160.74
 25 February 2004              108.87         205.66          138.01          162.44
 31 December 2002               87.13          39.72           91.35          118.04



                                                                                    29
No adjustments arising from the movements of the exchange rates after the year-end
have been made in the annual financial statements.

The annual official rate of inflation has moved as follows:
31 December 2003          9.8% (11.5% at 31 December 2002)
31 January 2004           10.1% (10.7% at 31 January 2003)

30.      ACCOUNTS HELD ON BEHALF OF THIRD PARTIES
The Reserve Bank of Malawi opens and holds external bank accounts on behalf
of third parties, mainly consisting of Donor funded projects and the Government
of Malawi. The Reserve Bank of Malawi has no ownership of the funds in these
bank accounts and accordingly they are not accounted for in the accounting
records. They are not reconciled or controlled by the Reserve Bank of Malawi
and are not included as assets or liabilities in these annual financial statements.
As at 31 December 2003, the number of these accounts was approximately 100
(2002: 36).




                                                                                      30
RESERVE BANK OF MALAWI                                       Appendix 1
DETAILED ANALYSIS OF INCOME
For the year ended 31 December 2003

                                                          2003      2002
                                                         (K‟m)     (K‟m)
Income from banking operations
Interest on advances to Government                       2,407     1,912
Crisp fees income                                           22         6
Interest on loans to Government                             18        47
Interest on staff loans                                      7         5
Sundry income                                                7         -
Interest on staff housing loans                              -         2
Interest on overdraft balances                               -         1
Total income from banking operations                     2,461     1,973
Income from money market operations
Interest income on MG Treasury Bills (Financial Market
Operations)                                              4,130     2,070
Interest on Government local registered stock              453       442
Interest on repurchase agreements                           79        30
Interest on Promissory Notes TR                             30        36
Other                                                        -         4
Total income from money market operations                4,692     2,582
Interest on foreign exchange operations
Interest on Crown Agents Asset Management Investment      125        136
Interest on time deposits                                  56        129
Swap Trade income                                          31          9
Interest on money employed                                 18         32
Interest on repurchase agreement                           11         14
Interest on holding of SDRs                                 2          1
IMF burden refund                                           1          2
Total interest on foreign exchange operations             244        323
Income from property
Rents receivable from staff                                30         27
Commercial rents receivable                                 4          8

Total income from property                                 34         35
Sundry income
Subscription & sundry fees                                 32         35
Staff restaurant                                           16         15
Other                                                      15         13
Profit on sale of property and equipment                    3         22
Registration and licensing fees                             2          2
Total sundry income                                        68         87

                                                                      31
RESERVE BANK OF MALAWI                              Appendix 2
DETAILED ANALYSIS OF OTHER INTEREST PAYABLE AND
GENERAL AND ADMINISTRATION EXPENSES
For the year ended 31 December 2003

                                             2003          2002
                                            (K‟m)         (K‟m)
Other interest payable
Emergency Assistance                          54            17
Foreign loans and lines of credit             42          4246
Enhanced structural adjustment                36          3629
Allocation of SDRs                            26            25
Crown Agents Asset Management fees            12           129
Membership assessment fees                     7            7-
Customers' funds employed                      2             1
Other                                          -             2
Total other interest payable                 179           129

General and administration expenses
Currency expenses                           1,032          777
Staff benefits                                407          334
Salaries                                      337          294
Malswitch expenses                            191          223
Office premises                               127          131
Professional fees and subscriptions           125          108
Retirement expense                            110           77
Office supplies                                70           49
Communication                                  66           52
External training                              60           37
Motor vehicle expenses                         48           47
External travel                                33           22
Local travel                                   22           21
Staff houses                                   21           40
Information                                    21           15
Public relations                               13           12
Computer costs                                 13           15
Local training                                 13           10
Sports and social activities                   10            8
Printing                                        6            8
Insurance                                       3            2
Property impairment loss                        -           41

Total general and administration expenses   2,728         2,323


                                                             32
General Notes
Owing to the rounding of figures, separate items will not always sum to corresponding
totals. Therefore, in the tables, the following symbols should be noted:

..     Means not available
-      Means nil or less than one half of the significant digit shown
*      Means preliminary figures
+      Means revised figures

Copies of the Reports and Accounts may be obtained without charge from the Director
of Research and Statistics, Reserve Bank of Malawi, P.O Box 30063, Capital City
Lilongwe 3, Malawi. E-mail: research@rbm.malawi.net. Any opinion expressed in this
document should be regarded as solely that of the Reserve Bank of Malawi. The Bank
wishes to express its appreciation of the co-operation and assistance extended by the
Treasury, the National Statistical Office and financial, commercial and industrial
organisations in supplying data and back-ground material.




                                                                                  33
2.        Economic and Financial Developments in 2003

2.1        The world Economy                  momentum to the global recovery
                                              through positive spillovers to other
Global economic recovery, although            countries. Other factors that promise to
expected to pick, remained unassuming         buoy global economic growth include the
as the year drew to an end, reflecting        waning of forces slowing down demand,
continued geopolitical uncertainties as       lower oil prices, reduced uncertainties
well as the cascading after effects of the    associated with the Iraq war, monetary
burst of the equity bubble. Asia remained     and fiscal stimulus in the pipeline in the
the worst hit, with the situation being       developed countries of the world
exacerbated further by the impact of the      supported by favourable and policy
Severe Acute Respiratory Syndrome             developments in a number of emerging
(SARS). The United States and Japan,          economies.
however showed signs of being on their
way to a possible sustainable recovery        (a)     Economic outlook for Industrial
                                                      countries
powered by relaxed fiscal policy and
recovering investment. In the currency        Growth in Industrial countries is expected
markets the US dollar continued to            to be powered by the US and Japan. In
depreciate amidst low interest rates          the US preliminary data points towards
signalling to the Fed to abandon its low      an accelerated economic recovery.
borrowing cost policy. A further cut in the   Economic recovery in Japan remained
US interest rates is therefore not            robust with quarter-on-quarter GDP
expected any time before at least the         growth at 0.6 percent in the third quarter
third quarter of 2004. By and large, global   of 2003. Growth in Japan remained
economic recovery remains threatened          primarily driven by domestic demand with
by persisting disparities between savings     net exports contributing about a third of
and investment in some major world            this growth. Growth in Japan is expected
economies. On a more sanguine note            to be buoyed by improving global
continued economic recovery in the            economic conditions.
United States and Asia promises to add

             Table 1 : Changes in real GDP in Advanced Economies (in percent)
                            1977-86    1998   1999    2000      2001     2002      2003
                           Average
Canada                           3.1    3.1    5.1      4.5      1.9       3.3      1.9
United States                    2.7    3.9    4.1      3.8      0.3       2.4      2.6
Germany                          1.9    2.3    1.8      2.9      0.8       0.2         -
Japan                            4.0   -2.8    0.7      2.4      0.4       0.2      2.0
United Kingdom                   2.1    2.2    2.1      3.1      2.1       1.9      1.7
All industrial countries         2.7    2.2    3.3      3.8      1.0       1.8      1.8
Source: I.M.F World Economic Outlook




                                                                                     34
                       Table 2: World Output: Annual percentage changes
                                      1998     1999      2000      2001      2002       2003
Advanced Economies                     2.7      3.4       3.9       1.0       1.8        1.8
United States                          4.3      4.1       3.8       0.3       2.4        2.6
Euro Area                              2.9      2.8       3.5       1.5       0.9        0.5
Japan                                  2.9      2.8       3.5       1.5       0.9        0.5
Developing Countries
Africa                                  3.5      3.9      5.7       4.1         4.6      5.0
Developing Asia                         3.2      2.7      3.0       3.7         3.1      3.7
Middle East and Turkey                  3.7      0.9      6.0       2.0         4.8      5.1
Countries in Transition                -0.9      4.1      7.1       5.1         4.2      4.9
Source: I.M.F World Economic Outlook

(b)        Economic Outlook for Developing       output is estimated at 1.1 percent in 2003
           Countries                             and to pickup to 3.6 percent in 2004.
(i)      Emerging Countries                      In the Middle East, while the quick end to
The outlook for emerging markets                 the conflict in Iraqi has boosted
continues to be driven by developments           confidence, the fragile security situation
in industrial countries, external financing      remains a major source of uncertainty.
conditions, geopolitical factors, and            Nevertheless, GDP for the region is
country specific developments. In                estimated at 5.1 percent in 2003. In 2004
emerging markets of Asia, with the               however, lower oil prices owing to higher
effects of SARS now waning, growth was           oil production will adversely affect the
expected to pickup in the second half of         outlook, thus output is projected at 4.6
2003, estimated at 6.4 percent and is            percent.
expected to remain strong in 2004, aided
by continued robust growth in China.             (ii)    Transition Countries
In Latin America, growth appears to be           Growth in transition countries remains
stabilizing and external confidence in the       quite solid, estimated at 4.9 percent in
region, particularly Brazil, has improved        2003, with substantial impetus from
markedly. Nonetheless, the recovery              Russia, which has an estimated growth
remains fragile and, with a number of            of 6.1 percent. Most European Union
countries facing significant debt problems       (EU) accession countries continue to
and political uncertainties, the region          benefit from strong direct investment
remains vulnerable to a reversal in              inflows, which are expected to boost
financial market sentiment. As such,             growth of the region.

         Table 3: Average changes in real output in developing countries (in Percent)
                                    1998      1999      2000      2001      2002        2003
All developing countries             3.5       4.0       5.7       4.1          4.6     5.0
Sub-Sahara excluding Nigeria
And South Africa                     3.7       3.3       2.5       4.0          3.5     3.3
Middle East & Turkey                 3.7       0.9       6.0       2.0          4.8      5.1
Africa                               3.4       2.8       3.0       3.7          3.1     3.7
Asia                                 4.0       6.1       5.3       3.3          4.4     4.5
Source: I.M.F World Economic Outlook




                                                                                         35
                                      Table 4: Terms of Trade
                                                1998       1999         2000       2001       2002       2003
Terms of Trade (Percentage changes)
Industrial countries                              1.7          -0.3      -2.9        0.4          0.8      1.1
All developing countries                         -6.6           5.8       7.2       -3.9          1.8     -0.4
 Fuel exporters                                 -26.5          34.3      45.8      -11.4          2.4      2.5
 Non-fuel exporters                              -1.1          -0.5      -1.8       -1.6          1.5     -1.1
Source: I.M.F World Economic Outlook

     (iii)     Countries in Africa                       conditions            continue      to       present
                                                         noteworthy           perils to    the      economic
Prospects for economic growth amongst
                                                         outlook.
the countries in Africa remain positive
relative to their performance in preceding
years. This has been premised on                         Weather conditions together with the high
improved policy implementation, better                   incidence of HIV/AIDS contribute to
commodity prices and the general                         serious food shortages in the region.
quelling of conflicts in conflict zones of               GDP is expected to pickup markedly in
the     continent.      Nonetheless    the               2004 to 5.1 percent. However, as in the
persistence of other conflicts, the                      past, this baseline outcome critically
negative effects of the HIV/AIDS                         depends on significant improvements in
pandemic, lasting famine in some parts                   political stability and favourable weather
of the continent and adverse weather                     conditions.

                Table 5: Percentage changes in prices in selected countries
                              1997        1998           1999          2000       2001       2002        2003
Consumer prices
United States                   2.3         1.5            2.2          3.4         2.8       1.6         2.1
Germany                         1.5         0.6            0.7          1.4         1.9       1.3         1.0
Japan                           1.7         0.6           -0.3         -0.9        -0.7      -0.9        -0.3
United Kingdom                  2.8         2.7            2.3          2.1         2.1       2.2         2.8
All industrial countries        2.1         1.5            1.4          2.2         2.2       1.5         1.8
All developing countries       10.0        10.5            6.9          5.8         5.8       5.3         5.9
 Fuel exporters                20.1        17.5           16.8         13.4        11.7      12.3        14.8
 Non-fuel exporters             9.0         9.8            5.5          5.0         5.2       4.6         5.1
 Africa                         7.9         5.8            3.9          5.4         4.9       3.3         5.3
Source: I.M.F World Economic Outlook
              Table 6: Developing countries: Debt service ratios (in percent)
                            1997        1998            1999          2000       2001       2002        2003
Debt service ratios
Developing countries        24.1         27.0           28.0           7.2         7.1        5.9        5.0
Africa                      22.6         24.2           20.3           6.8         6.9        9.0        5.5
Asia                        14.5         19.5           19.0           6.4         6.7       10.0        5.7
Net debtor countries        26.0         29.1           17.0           9.5         9.3        7.9        6.7
Fuel exporters              10.9          9.5           11.3           3.3         3.3        2.7        2.7
Non-fuel exporters          11.3         12.3            3.1           8.3         8.1        6.7        5.6
Source: I.M.F World Economic Outlook




                                                                                                          36
3.      The Malawi Economy Overview in 2003

During the year 2003, the national            resources from the domestic financial
economy showed much improvement               market.
from the performance recorded in 2002.
The real sector was mostly affected by        Monetary developments in 2003 were
the depreciation of the kwacha, high          mainly influenced by fiscal operations.
interest rates, stiff competition from        Because of lower yields on the money
foreign cheap products and upward             market and little external reserves, open
revisions in fuel pump prices.                market operations were not satisfactory
                                              and this resulted in an expansion of 29.3
Real Gross Domestic Product (GDP)             percent in money supply to K35,182.7
growth picked up to 4.4 percent in 2003       million in 2003. In the previous year,
compared to 1.8 percent in 2002. The          money supply grew by 25.2 percent.
improvement was mainly on account of          Domestic credit extended to both
improvements in agricultural sector.          government and private sector increased
Other sectors such as the manufacturing       while that extended to the private sector
sector also contributed noticeably to the     decreased.
overall growth of the economy. During
the year 2003, inflation averaged 9.6         Measured by the change in the net
percent lower than an average of 14.8         foreign assets of the banking system, the
percent in 2002. The slowdown resulted        overall balance of payments position
mainly from low prices in the food sector,    recorded a surplus of K5,654.5 million in
particularly maize as a result of increased   2003. In 2002 there was a balance of
production and subsidised importation.        payments deficit of K13,895.4 million.
                                              Current and capital accounts had varied
As a percentage of the GDP, Central           performances as the former registered a
budgetary operations were characterised       deficit while the latter recorded a surplus.
by a deficit of 14.7 percent (K24,642.6       Guided by developments both on the
million). This was marginally higher than     domestic and international markets, the
that registered in the previous year by 0.9   Malawi Kwacha significantly depreciated
percentage      points.   Despite    major    against all currencies of its major trading
improvement in tax collection by the          partners. On the domestic front, the
Malawi Revenue Authority, the growth in       collapse of tobacco prices at the auction
expenditures was larger than growth in        floor had an adverse impact on the
revenues. Expenditure upsurge was             country‟s external reserve position. This
apparent     in    both    recurrent   and    coupled with hoarding of foreign currency
development accounts. The strain on the       by some exporters and non-receipt of
budget, among other factors, resulted         donor support led to scarcity of foreign
from a noticeable freeze in donor aid and     exchange there by putting pressure on
domestic debt service payments as             the kwacha. In the sub-region therefore
central government resorted to domestic       the kwacha lost value by 61.4 percent
borrowing, which eventually increased         against the South African rand to close
expenditures in form of interest              the year at K16.33 per rand while against
payments. Importation of maize also           the US dollar, the nominal value of the
exacerbated levels of expenditure. The        kwacha went down by 24.6 percent,
deficit was mainly financed with              closing the year at K108.57 per dollar.




                                                                                       37
3.1     Production and Prices                 of cheap working capital and capital
                                              investment.
Malawi‟s economic performance in the
year 2003 improved compared to 2002.          The utilities sector also experienced a
National Income estimates indicate that       slower growth of 4.7 percent in 2003
real gross domestic product (GDP)             compared to 5.8 percent in the preceding
increased by 4.4 percent in 2003              year. The slower growth was mainly on
compared to a modest increase of 1.8          account of a decline in ESCOM‟s output
percent in 2002. The improvement in           that was due to turbine damage by floods
overall performance was mainly on             at the Nkula-B station. Growth in 2003 in
account of improved performance of the        the sector emanated largely from the
agriculture sector due to its positive        water sub-sector as a result of projects to
impact       on     manufacturing,    and     expand the water supply system to reach
distribution. The agriculture sector grew     more consumers. Output in the transport
by 6.8 percent after experiencing a           and communication sector slackened
growth of only 2.4 percent in the             considerably to 2.2 percent in 2003 from
preceding year. Performance of the            14.5 percent in 2002. The substantial
manufacturing sector improved to 1.2          increase in 2002 was a result of
percent compared to a decline of 0.1          transportation of relief items and the
percent in 2002, considering the              improved       performance       in    the
environment       of    poor     economic     communication sub-sector. In 2003 the
fundamentals as manifested by high            road transport improved while the air and
interest rates, fluctuation of the Malawi     rail sub-sectors declined. The damaged
kwacha vis a vis foreign currencies and       Rivirivi Bridge affected the output of the
inflation. The improvement emanated           rail sub-sector, as the company did not
from sub-sectors like confectionery,          transport tobacco.
publications, textiles and garments,
cement production and dairies. The            Consumption as a share of GDP slowed
distribution sector grew by 2.3 percent in    down, albeit marginally, to 106.4 percent
2003 compared to a growth of only 1.6         from 107.1 percent in 2002. These
percent in 2002.                              continued high consumption/GDP ratios
                                              indicate the further erosion of domestic
In contrast to the dismal performance in      savings. Much of the increase in
the mining and quarrying sector in 2002,      consumption       was     attributed    to
a contraction of 38.7 percent, that was       government vis-a-vis as evidenced by the
associated with a decline in coal             continued     upward    trend     in  the
production due to prolonged production        government consumption/GDP shares
due to prolonged rainfall, higher taxes,      vis-à-vis the downward trend in the
and increase in informal quarrying            private consumption/GDP share. Malawi
activities, the sector grew considerably      continues to be a consuming nation
by 23.5 percent in 2003. Output in the        rather than a producing one.
construction sector grew by 9.7 percent
in 2003 compared to a growth rate of          Agriculture output increased by 6.8
14.1 percent recorded in 2002. The            percent compared to a growth of 2.4
slower rate of growth in the sector is due    percent in 2003 due to improved weather
to the extension of surtax which has          conditions, the resumption of the
increased the cost of construction and        universal starter pack scheme and other
made companies less competitive, as           input schemes by employers. The growth
well as high interest rates leading to lack   in agriculture was mainly due to the
                                              smallholder agriculture sub-sector which




                                                                                      38
grew by 13.3 percent after a contraction      It should be noted that the reduction in
of 0.4 percent in 2002 The large-scale        production was mainly observed in flue-
sub-sector declined by 16.5 percent           cured and burley tobacco types.
compared to an increase of 13.9 percent       Production of oriental types increased
in 2002. The decline in output was a          due to higher world demand as well as
result of low production of sugar and         good prices fetched in 2002. The
burley     tobacco.     Burley    tobacco     average price for the 2003 season was
production declined by 20 percent, while      US$1.19/kg, marginally higher than the
that of sugar declined by 3.7 percent in      US$1.18/kg fetched in the preceding year
2003. The impact therefore of the growth      by 1.1 percent. A total of US$138.8
in small-scale agriculture on overall         million has been realized against
agricultural output was partly subdued by     US$163.1 million realized in 2002,
the contraction in the large-scale            representing a decline of 14.9 percent
agriculture sub-sector.                       (US$21.8 million). The reduction in
                                              revenue earned was a result of a lower
Tobacco production declined to 116.3          marketed crop, which was in turn due to
million kilograms in 2002 compared to         low production of the crop.
138.1 million kilograms in 2002. The drop
in production was mainly due to some          Nine months of data (January –
growers in the industry shifting to other     September 2003) indicated that a total of
non-agricultural activities resulting from    193.6 million kilograms of sugar were
low prices fetched during the 2002            produced in 2003 compared to 260.6
season that were not good enough to           million kilograms produced in 2002,
cover production costs. Prices were           representing a 25.7 percent decline. The
particularly low for flue-cured and burley    decline in production levels was due to
tobacco types, which are the main types       reduced production levels of sugar at
in the Malawi tobacco industry.               ILLOVO‟s Nchalo sugar plantation this
                                              year compared to the preceding year.
                                              However it should be noted that 2002
   Chart 1: Tobacco Auction sales and
                                              was a record year in production levels.
            Sugar Production
                                              As a result of the lower production in
                                              2003, sugar exports for the year declined
 300                                          by 2.5 percent to 89.7 million kilograms
                                              from 92.0 million kilograms exported in
 250                                          2002. Sugar prices rose by 59.6 percent
                                              and averaged K46,815.0 per tonne
 200                                          compared to K29,325.0 per tonne
                                              fetched in 2002 as a result of price
 150
                                              negotiations.

 100
                                              Based on nine months of data (January –
                                              September 2003) tea production for 2003
                                              amounted to 34.0 million kilograms
  50
                                              representing a 2.5 percent decline on the
                                              amount produced during a corresponding
   0
                                              period of 2002 (34.9 million kilograms).
       1998 1999 2000 2001 2002 2003
                                              The decline in production was due to
             Tobacco                  Sugar   adverse weather conditions. Late rains
 Source: National Statistics Office           affected production of tea in the review
                                              period. In 2003 (January–December)




                                                                                    39
14.4 million kilograms of tea were sold,     The increase was attributed to an
16.2 percent lower than 17.1 million         increase in both the cultivated area and
kilograms sold in 2002. The lower tea        yield.
sales were due to lower production of tea
especially in the latter months of the       The increase in production of non-
year, which was in turn due to adverse       traditional crops anticipated this year is a
weather conditions such as rains             welcome development considering the
commencing later than normal. A number       decrease of 50 percent experienced last
of tea sales were actually cancelled         year. 2.370 million metric tones of minor
because the minimum number of tea            crops were produced in 2003, up from
packages that are required to hold an        last year‟s production of 1.485 million
auction was not met. Prices averaged         metric tonnes. The increase comes
US$0.74/kg during the review period,         largely from increased production of
18.5 percent lower than US$0.91/kg           coffee and sweet potatoes. However,
fetched in 2002. Due to the lower volume     significant declines were observed in the
of tea sold this year as well as lower tea   production of paprika (-82.3 percent) and
prices, total realization amounted to        macadamia (-70.7 percent) and cashew
US$10.7 million down by 31.6 percent on      nuts (-68.8 percent).
US$15.7 million fetched during a
comparable period in 2002.
                                             For the year 2003, inflation averaged 9.6
Smallholder crop production in 2003          percent, which was a notable slowdown
increased significantly by 29.1 percent to   when compared to an average of 14.8
6.641 million metric tonnes from 5.143       percent for 2002. The slowdown was
million metric tonnes in 2002. The           largely attributable to the availability of
increase was due to increased uptake of      maize grain because of higher maize
fertiliser due to the Extended Targeted      production in 2003 vis a vis in 2002, as
Input Program and adequate rain in most      well as the continued tight monetary
parts of the country. Maize production       stance that was taken by monetary
rose to 1.847 million metric tonnes,         authorities through intensive open market
representing 24.4 percent increase on        operations. Food inflation for the year
1.485 million metric tonnes produced in      2003 averaged 5.3 percent, a significant
2002. Other important crops also             slowdown from 16.2 percent for 2002.
registered notable increases. Smallholder    The improvement was on account of a
tobacco production rose to 94.312 million    better crop harvest as well as a
kilograms from 89.401 million kilograms      government subsidy on imported maize
during       the    preceding      season    and the provision of relief maize by the
representing a 5.5 percent increase. This    donor community for free distribution to
resulted from an increase in the             vulnerable groups and for commercial
hectarage.       Smallholder    groundnut    sale. Non-food inflation averaged 15.0
production increased to 179,326 metric       percent in 2003 compared to an average
tonnes from 150,604 metric tonnes            of 13.4 percent recorded in 2002. A
produced during the preceding season.        continued increase in the national rate of
                                             inflation is expected in the ensuing year.




                                                                                      40
                                              million in 2003, from a deficit of
 Chart 2: The National Consumer Price
                                              K28,678.2 million in 2002. The capital
                 Index
                                              account balance registered a surplus of
                                              K13,805.0 million in 2003, compared to
 180                                          K15,151.1 million in the preceding year.

                                              The change recorded in the current
                                              account deficit from K28,678.2 million in
                                              2002 to K31,088.7 million in 2003 was
 160                                          largely due to a 21.6 percent rise in non-
                                              factor payments from K16,494.9 million in
                                              2002 to K20,054.1 million in 2003. This
                                              rise coupled with a 15.7 percent year-on-
                                              year increase in imports crowded out the
 140                                          seemingly substantial 26.3 percent year-
                                              on-year rise of exports, from K31,713.1
                                              million in 2002 to K40,041.0 million in
                                              2003. Net factor services deteriorated
                                              from a deficit of K3,265.8 recorded in
 120                                          2002 to a deficit of K4,503.4 million in
                                              2003. This was largely due to a marginal
                                              rise in interest receipts by both private
                                              and statutory bodies, which increased
                                              from K462.2 million in 2002 to K490.2
 100                                          million in 2003 owing to the harsh
       2000    2001     2002    2003          economic climate prevailing during the
                                              year under review. This insignificant rise
                                              was offset by a rise in factor payments
This is premised on several factors such      from K3,728.0 million in 2002 to K4,993.6
as expectations of food costs rising faster   million in 2003, largely due to a rise in
in the medium term due to seasonal            total interest payments from K1,796.0
shortages, increases in fuel prices that      million in 2002 to K2,537.2 million in
occurred in the latter part of the review     2003. The rise in total interest payments
period, the uncertainties surrounding the     was in turn chiefly due to a rise in central
status of donor aid to the country, and a     government interest payments from
likely growth in money supply in the          K1,493.2 million in 2002 to K2,214.0
coming months due to anticipated              million in 2003.
expenditures related to forthcoming
general elections in May 2004.                In the capital account the marginal
                                              decline in the surplus was largely
3.2 Balance of Payments                       attributed to a decline of net government
                                              drawings which was caused by an
The country‟s overall balance of              unprecedented rise in payments from
payments, as measured by the change in        K2,152.0 million in 2002 to K5,129.1
net foreign assets of the banking system,     million during the year under review.
recorded a surplus of K5,654.5 million
during 2003. This was an improvement          The nominal value of the Malawi kwacha
from a deficit of K13,895.4 million           continued to be guided by developments
recorded in 2002. The current account         on both the local as well as international
balance registered a deficit of K31,088.7     markets in 2003. Internationally, the




                                                                                       41
continued depreciation of the US dollar            3.3      External Debt Situation in
helped sustain the kwacha at moderate                       2003
levels. Consequently the nominal value
of the kwacha depreciated by 24.6                  There has not been significant change in
percent against the US dollar in 2003, as          external debt outstanding as at end of
opposed to a depreciation of 29.5                  2003 compared to same time last year.
percent recorded in 2002. The local                As at 31 December 2003, external public
currency thus closed the year trading at           debt outstanding was US$2,480.0 million,
K108.57 per US dollar. The kwacha also             a very slight increase from that reported
depreciated by 48.0 percent, 37.9                  the year before which was US$2,473.3.
percent and 38.1 percent against the               This increase of less than 0.3 percent
euro, pound sterling and Japanese yen              emanated from disbursements slightly
respectively. The kwacha hence closed              offsetting       repayments.        Major
the year trading at K135.93, K192.73 and           disbursements were from the World Bank
K1.01 against the respective currencies.           with US$18.2 million, followed by the
                                                   emergency relief from the IMF amounting
                                                   to US$9.0 million, while from Nordic and
  Table 7: Balance of Payments, 2002-              IFAD US$2.2 million and US$1.1 million
                 2003                              were disbursed, respectively during the
                               2002        2003    year. Being a HIPC country, Malawi, has
1.Merchandise Trade1                               reduced borrowing non-concessional
      Exports (f.o.b)       31,713.1    40,041.0   loans and emphasizes financing the
      Imports (f.o.b)       34,046.1   52,781.5    resource gap through grants. This
         Balance            -2,649.3   -15,236.1   notwithstanding, generally disbursements
2.Non-factor Services                              from a number of creditors was not as
      Receipts               2,656.5   4,818.1     expected due to non-compliance with the
      Payments              13,690.7   20,054.1    IMF programme targets during the year.
3.Factor Services
      Receipts                 452.0      490.2
      Payments               3,421.2    4,993.6    Central Government remained the main
4.Private Transfers                                debtor followed by the Reserve Bank
      Receipts               1,633.0    2,700.0    borrowing on behalf of the Government
      Payments               1,295.8    1,309.2
                                                   on the IMF‟s PRGF window and finally
5.Government Transfers
      Receipts               6,816.6   10,448.2    parastatals, who have registered no
      Payments                  44.0      181.0    borrowing on Government Guarantee for
6.Long-Term Capital (net)                          a long time, have diminishing debt stock.
      Government            10,632.7           -   Central Government and parastatal debt
      Public Enterprises       230.6    1,112.4    accounted for 96.3 percent, while
      Private Sector           269.7       350.6   Reserve Bank debt was 3.7 percent of
7.Net Short-term Capital+                          the total public external debt.
  Errors and Omissions       5,965.9    8,445.9
8.Overall Balance before
  Debt Relief                 783.6     -8,837.8   The bulk of external public debt is owed
9.Debt Relief                2,439.8    3,183.3
                                                   to multilateral institutions, with the World
10.Overall Balance after                           Bank being the main creditor, followed by
   Debt Relief               3,223.4    -5,654.5   the ADF accounting for 73.6 percent and
                                                   14.8 percent of the total multilateral debt,
11.Change in NFA of the                            respectively.     Both      Bilateral   and
                                                   Commercial debts are diminishing over
  Banking System
  (increase)                -3,223.4   5,654.5
                                                   the years with 2003 registering 12.0
Source: N.E.C, N.S.O, Treasury and RBM             percent and slightly above 0.1 percent of




                                                                                            42
the total debt, respectively, compared to         ESCOM and MTL fulfilling its guarantor
12.2 percent and slightly below 0.3               obligation. These amounted to K121.6
percent of the total debt, respectively,          million, representing 1.4 percent of the
registered at the end of 2002. One of the         total central government debt servicing
HIPC conditionalities that any HIPC               Debt relief under the HIPC initiative
should not borrow non-concessional                continued to relieve the pressure on
loans deters Government and indeed                foreign exchange. During the year 2003,
debtors in Malawi contracting new loans           total flows into the HIPC account
with bilateral and commercial creditors.          represented 45.7 percent of total debt
                                                  service. The significant development was
Total debt service payments during 2003           experienced in April when Japan offered
amounted to MK 9,973.4 million which              to provide direct relief under the HIPC
accounts for 7.0 percent of total                 initiative. This led to apparent increases
government expenditure and 5.4 percent            in the flows to the HIPC account. Interim
of GDP. Of the payments made MK                   HIPC Relief that started in 2001 was
4,562.4 million was deposited into the            expected to end by December 2003.
HIPC account for use in the pro-poor              However with the extension of the IMF
programmes of Government. Compared                program to December 2004 following
to the previous year, debt service                program slippages, interim HIPC relief
increased owing to the heightening                has also been extended to December
exchange rate changes. The consolation            2004. If the situation improves on the IMF
is that more money went into the HIPC             program it is expected that there will be
account this year than did the previous           full relief to Malawi at this time (known
year, which is simply a transfer within the       under the HIPC initiative as the
country. Amortization during the period           completion point).
was MK7,412.7 million compared to
MK3,064.4 million the previous year,              Prospects on disbursement depends on
while interest and other payments went            the events following the general elections
up to MK2,560.7 million from MK1,396.1            in May 2004, this may lead to increase in
million in 2002. More money was                   debt stock. With the extension of the
externalised on IDA loans followed by the         HIPC interim period to December, 2004
Japanese loans. The central Government            the pressure on foreign exchange will
continued to service loans on behalf of           continue to be eased.

                     Table 8: External Debt Stock in Millions of US Dollars
                               1997      1998      1999      2000      2001      2002      2003
Central Government           2,053.2   2,179.0   2,450.7   2,512.9   2,449.0   2,335.8   2,324.9
Parastatals                     35.2      34.4      71.7      62.3      74.4      44.6      63.3
Reserve Bank                   105.8     117.3      87.6      82.6      77.8      92.8      91.8
Total                        2,194.2   2,330.7   2,610.0   2,657.8   2,601.2   2,473.2   2,480.0
Source:   Reserve Bank of Malawi




                                                                                              43
3.4     Public Finance                        Pay as you earn (PAYE) tax stood at
                                              K6,021.5 million compared to K4,275.8
The year 2003 was portrayed by a              million during the preceding year
deterioration in the performance of           reflecting     improved       compliance.
central government budgetary operations       Company tax increased by 62.5 percent
as depicted by the widening of the            to K3,884.4 million in 2003. Surtax,
budget deficit (excluding grants) to 14.7     Excise duty and other taxes experienced
percent of GDP (K24,642.6 million) from       respective increases of 37.3 percent,
13.8 percent of GDP (K19,408.6 million)       56.8 percent and 114.9 percent to
recorded in 2002. This indicates that         K10,583.3 million, K3,991.3 million and
measures set out to contain expenditures      K1,231.9      million    correspondingly.
were not fully adhered to as denoted by a     Similarly, non-tax revenues increased by
significant increase in government            K1,587.3 million to K4,640.8 million from
expenditures in 2003. However the             K3,053.5 million in 2002. Foreign grants
budget deficit including grants worsened      amounted to K10,101.7 million compared
by 4.2 percent to K15,541.1 million from      to K5,459.7 million in the previous year
K13,948.9 million recorded in 2002.           representing 85.0 percent improvement.
Despite the fiscal deficit, government        This was due to the resumption of foreign
revenues increased significantly in 2003      aid to the country during the last quarter
due to strides taken by the Malawi            of 2003.
Revenue       Authority    to    improve
compliance and efficiency in its              Total government expenditures during
operations. The deficit was mainly            2003 increased by 32.7 percent to
financed through domestic resources.          K60,962.2 million from K45,923.9 million
                                              recorded in 2002. This was attributable to
Total government revenues increased           increases in both recurrent and
remarkably by 45.4 percent to K46,493.3       development expenditures. Recurrent
million (27.7 percent of GDP) from            expenditures increased to K50,246.9
K31,975.1 million (22.8 percent of GDP)       million from K39,835.4 million recorded
registered in 2002. This development          during the previous year. The rise mainly
was largely on account of grants which        emanated from interest payments and
rose by 85.0 percent. Domestic revenues       other expenditures. Interest payments
also increased by 37.0 percent to             stood at K16,053.2 million compared to
K36,319.7 million from K26,515.4 million      K7,266.7 million registered in 2002
collected in the previous year. The           representing an increase of 120.8
increase in domestic revenue resulted         percent. This was partly on account of
from measures taken by MRA to curb tax        the protracted freeze in donor aid during
evasion, the extension of surtax from         the greater part of 2003, which caused
manufacturing stage to wholesale and          the government to resort to short-term
retail stages and improvements in             domestic borrowing to finance its
domestic revenue collections. Other tax       activities. Other expenditures increased
measures      included     reduction     of   by K7,741.5 million to K13,611.7 million
withholding tax from 10.0 percent to 4.0      from      K5,870.2   million  in    2002.
percent, the withdrawal of withholding tax    Development expenditures increased by
exemptions, the reduction of duties and       76.0 percent to K10,715.3 million from
excise on hessian sacks and the removal       K6,088.5 million recorded in the
of duties on animals, textiles, skins, and    foregoing year of which K8,660.2 million
bags in accordance with the SADC              was foreign financed and K2,055.1
trading arrangement.                          million was financed domestically.




                                                                                     44
                  Table 9: Summary of Central Government Operations
                                  1998       1999          2000       2001       2002        2003
Total Revenue and Grants      11,676.8   19,126.4      27,639.5   28,512.6   31,975.1    46,493.3
   Revenue                     8,566.8   14,444.1      17,771.4   22,853.2   26,515.4    36,319.7
   Grants                      3,109.9    4,682.3       9,868.1    5,659.4    5,459.7    10,101.7
Total Expenditure             12,200.1   21,655.7      32,121.4   31,493.6   45,923.9    60,962.4
   Recurrent Expenditure       8,736.2   14,995.7      20,445.6   26,129.4   39,835.4    50,247.1
   Development Expenditure     3,463.9    6,659.7      11,675.8    4,318.9     6,088.5    10,715.3
Net lending                          0          0             0     1045.3           0           0
Deficit Before Grants         -3,633.3   -7,211.3     -14,422.8   -8,640.3   -19,408.6   -24,642.6
Deficit After Grants            -523.4   -2,528.9      -4,554.7   -2,980.9   -13,948.9   -14,541.1
Total Financing                  523.5    2,528.9       4,554.7    2,980.9    13,948.9    14,541.1
Foreign Loans (net)              579.2    2,354.1       4,433.7    2,782.3      -219.5   -2,823.11
Borrowing                      1,829.1    4,048.9       7,817.7    5,960.3     3,908.9     3,718.5
Repayment                      1,249.9    1,694.9       3,383.9    3,178.1     4,128.5     6,541.6
Special Financing (net)                                             -375.4     -1014.6           0
Domestic Borrowing (net)      -2,779.6    1,500.6       2,232.3    2,565.9    16,684.6    12,733.7
Errors and Omissions           2,723.8   -1,325.8      -1,003.6   -1,991.8    -1,501.7     4,630.5
Source: Ministry of Finance

As indicated earlier on, the government             increased demand for credit, mainly by
budget deficit after grants worsened to             government as the donor community
K14,541.1 million from K13,948.9 million            continued to withhold some of the
recorded in 2002. The fiscal imbalance              budgeted budgetary support.
was mainly financed through domestic
resources. Due to the late resumption of            That notwithstanding, the central bank
donor aid, the government resorted to               continued    with    its   open    market
domestic borrowing mainly from the non-             operations (OMO) with the aim of
bank sector. Thus government net                    mopping up excess liquidity and contain
domestic      borrowing   increased    by           growth of broad money (M2). The efforts
K12,733.7 million over the debt stock in            were however, hampered by sharp
2002 of which K9,507.7 million was                  declines in external reserves, which
borrowed from the non-bank sector and               limited the Central bank‟s ability to use
K3,428.0 billion was borrowed from the              foreign exchange sales as an anchor of
banking system. Foreign loans amounted              monetary policy operations. In addition
to K3,718.5 million compared to K3,909.0            the need to bring down interest rates in
million borrowed during the preceding               the money market, adversely affected the
year. Loan repayments increased by 58.4             leverage at       which open market
percent to K6,541.6 million from K4,128.5           operations could be put into use.
million in 2002.
                                                    As a result, money supply in 2003
3.5      Money and Credit                           expanded by 29.3 percent to K35.2 billion
During 2003, the stance of monetary                 compared to 25.2 percent in 2002. Of the
policy remained tight, largely focusing on          29.3 percent growth in money supply, net
bringing down the level of inflation and            domestic    credit    contributed  19.1
establishing macroeconomic stability                percentage points to the growth, while
needed for growth and development.                  expansion in other items (net) of the
However, the outturn for the year showed            banking system was responsible for 7.2
that the broad measure of money supply              percentage points of the annual M2
(M2) had actually expanded as a result of           growth.




                                                                                               45
                               Table 10: Monetary Survey (K‟mn)
                                         End month balances                 Changes during periods
                                        2001        2002        2003        2001         2002      2003
Net Domestic Credit
   Credit to government1              5,829.0      15,711.2 18,603.1         5,261.8      9,882.2 2,977.5
   Monetary Authorities               3,663.4       9,751.5     8,154.5      4,731.1      6,088.1 -1,511.4
   Commercial banks                   2,165.6       5,959.7 10,448.5           530.6      3,794.1 4,488.8
   Credit to statutory bodies          -109.4        -206.2      -351.8     -1,151.4        -96.8   -231.3
   Credit to private sector
   (gross)                            6,454.0       7,363.4     9,808.7        636.5        909.4 2,445.3
Narrow Money (m1)
    Currency outside banks            4,066.3       5,964.0     7,838.3         42.6      1,897.7 1,874.3
    Private sector demand
    deposits                          6,277.1       7,476.1     9,625.9        991.3      1,199.0 2,149.8
Quasi-money                          11,382.1      13,770.4 17,718.5         2,767.0      2,388.3 3,948.1
    Money Plus Quasi-money
    (M2)1                            21,725.5      27,210.0 35,182.7         3,800.9      5,485.0 7,972.2
Net Foreign Assets
   Monetary Authorities               8,767.8       1,547.5     2,304.9     -2,521.2      7,220.3    757.4
   Commercial banks                   4,105.6       3,178.4     4,010.6        789.2       -927.2    832.2
Source: Reserve Bank of Malawi
1
  Time, savings and foreign currency deposits of the private sector with commercial banks
Note: From December 2001, monetary survey encompasses data on the central bank and four commercial
banks: national Bank, Stanbic Bank, finance (Malawi) limited and First Merchant Bank (Malawi) Limited

Central government borrowing from                      exchange market in support of the
banking system increased by K3.1 billion               kwacha; otherwise the kwacha exchnage
(19.6 percent) to K18.7 billion from K15.6             rate should have continued to depreciate.
billion at the end of December 2002. The               Gross foreign reserves of the banking
increase in Government borrowing was                   system amounted to K18.7 billion at the
entirely on account of increased                       end of 2003, a drop to 2.8 months of
government issuance of Treasury bills to               import cover from 3.4 months in 2002.
the commercial banks.                                  This was largely due to depressed
                                                       tobacco prices and non-receipt of most of
Commercial       banks‟      holding   of              the programmed balance of payment
Government of Malawi Treasury bills                    support facilities from the donor
increased by 88.7 percent (K4.3) to K9.1               community. As a result of the depressed
billion from K4.8 billion a year before.               level of international reserves, the
Otherwise, government borrowing from                   kwacha exchange rate moved from
the central bank during in 2003 went                   K87.1385 to the United States Dollar in
down by 14.7 percent (K1.4 billion). The               December 2002 to K108.5669 per United
improvement in government position                     States Dollar in December 2003.
against the central bank was particularly
                                                       3.5.1     Money and Quasi-Money
as a result of the disbursement of some
assistance by the donor community                      Money supply rose by 29.3 percent and
during the latter part of the year. About              totalled K35,182.7 million in 2003
K2.2 billion (US$20 million) worth of                  compared to an increase of 25.2 percent
donor support was disbursed between                    recorded in 2002. From the demand side
October and December 2003, which                       the expansion was explained by both
enabled government to reduce its debt                  components of money supply. Narrow
with the RBM. The foreign exchange                     money contributed 14.8 percent to the
received also helped the Central Bank to               growth in M2 while quasi money
effectively intervene on the foreign                   explained 14.5 percent of the increase.




                                                                                                       46
Narrow money which is the most liquid             3.5.2   Net Domestic Credit
component of broad money (comprising
of currency outside banks and demand              Total net domestic credit extended by the
deposits), which is the most liquid               banking system expanded annually by
component of broad money rose by 29.9             23.1 percent (K5,282.2 million) to
percent to K17,464.2 million in 2003.             K28,150.8 million in 2003. This followed
Currency outside banks rose by 31.4               another increase of 87.9 percent
percent and amounted to K7,838.3                  (K10,694.9 million) observed during the
million compared to an increase of 46.7           preceding year. Net domestic credit to
percent in 2002. Demand deposits were             government and gross credit to private
28.8 percent up from the levels attained          sector recorded respective increases of
at end of December 2002. The increase             19.6 percent and 33.2 percent to
in these balances reflected high demand           K18,693.9 million and K9,808.7 million.
for    transactional  money     balances          Net credit to statutory bodies on the other
resulting to finance economic activity            hand declined by 192.1 percent to
during the year.                                  K351.8 million
Quasi-money registered a growth of 28.7           Increased budget deficit, with large
percent to K17,718.0 million compared to          shortfalls in donor inflows, turned around
a growth rate of 21.0 percent recorded in         the expected government repayment of
2002. Both foreign currency and time and          its outstanding domestic debt stock to a
savings deposits recorded increases.              high net additional domestic bank
The rise in foreign currency deposits             borrowing,      causing    difficulties    in
(33.0 percent) was mainly as a result of          monetary        management.           Central
tobacco export proceeds held by the               government borrowing from banking
private sector coupled with exchange              system was up by K3,068.3 million to
rate gains following the depreciation of          K18,693.9 million from K15,625.6 million
the kwacha. The rise in time and savings          at the end of December 2002.
deposits (19.0 percent) partly reflected a        Government borrowing shifted from the
shift in portfolio preferences from low           central bank to commercial banks. Net
yielding Treasury bills to bank deposits.         credit to government from the central
                                                  bank (monetary authorities) declined by
Chart 5: Banking System: Broad Money (M2) (K‟m)
               (Quarterly balances)               K1,511.4 million toK8,154.5 million due to
                                                  an increase of K2,810.9 million in
  40000                                           deposits following some donor inflows in
  35000                                           the latter months of the year. Otherwise
  30000
                                                  government utilized mostly commercial
                                                  banks‟ resources through issue of
  25000                                           treasury bills, which rose by K4,271.7
  20000                                           million in 2003.
  15000
                                                  Growth in credit to the private sector of
  10000                                           33.2 percent partially reflected a pick up
    5000                                          in economic activity. The growth in credit
                                                  to the private sector was also partly
       0
           2000    2001     2002      2003        driven by the decline in interest rates
                                                  coupled with an increase in business
           Mar    Jun     Sep   Dec               confidence following the resumption of
                                                  donor inflows.




                                                                                            47
Total net credit to the parastatal sector       Balance in capital accounts rose by
declined by K231.3 million to negative          K1,661.4 million compared to an increase
K351.8     million   following   another        of K1,172.1 million in 2002, reflecting
decrease of K11.0 million in 2002. The          profits made by banking industry during
decrease was attributed to repayments           the year. Other liabilities of the
made by the utility companies and both          commercial banks rose by K169.9
ADMARC and the National Food                    million. The rise in these balances was a
Reserve Agency.                                 result of accrued interest payable on
                                                customer deposits.
  Chart 6: Banking System Net Domestic Credit
                   (quarterly                   Liabilities to non-residents were also a
                   balances)                    major source of funds to the commercial
    K'million                                   banks when they grew by K484.9 million
 30000                                          (43.4 percent) compared to an increase
                                                of K102.3 million or 10.1 percent during
 25000                                          the preceding year. The increase
                                                reflected accumulation of deposits by the
 20000                                          non-residents     than    actual  foreign
                                                borrowing abroad by the banks.
 15000
                                                Deposits of the official sector declined by
 10000                                          K437.3 million as both the government
                                                and statutory bodies depleted their
  5000                                          deposits    to   meet      their   financial
                                                requirements.      Deposits      of     the
        0                                       government with the commercial banks
            2000      2001   2002    2003       dropped by K269.6 million, while those of
                Mar    Sep   Jun     Dec        the public enterprises were down by
                                                K167.7 million during the year.

                                                The government was the major user of
3.5.3       Commercial Banks: Sources
                                                funds as the sector absorbed 26.5
            and Uses of Funds
                                                percent of total resources of the
                                                commercial banks. The banks increased
Total resources available to commercial         their investment in government securities
banks increased by 23.9 percent to              through Treasury bills which rose by
K41,331.7 million in 2003 compared to           K4,132.9 million. Commercial banks
an increase of 22.9 percent in 2002.            advances to government rose by K138.7
Private sector deposits was the major           million,    reflecting   expansion      in
source of funds for the domestic money          government financing requirement from
banks when they rose by K6,097.9                the sector. Commercial bank lending to
million during the year. This outcome           private sector rose by K2,445.3 million to
largely reflected a shift in portfolio          K9,808.7 million. The increase partly
preference from the treasury bills due to       reflected a reduction in lending rates by
lower yields towards the end of the year.       the commercial banks.
As such the relatively high deposit rates
assisted deposit mobilization. In addition      Foreign assets of the banks went up by
foreign currency deposits increased             K1,317.1 million (30.7 percent). The
because of exchange rate gains from the         increase was explained by a rise in
depreciation of the kwacha.                     private customers foreign currency




                                                                                         48
deposits, which rose by 30.3 percent.                     reserves of the commercial banks at the
The rise in foreign currency deposits was                 central bank and vault cash rose by
partly due to the depreciation of the                     K512.5 million (10.6 percent). The
kwacha, which increased the Kwacha                        increase partly reflected a rise in the
value of FCDs. Meanwhile the domestic                     deposit base of the commercial banks.

                  Table 11: Commercial Banks: Sources and Uses of Funds
                                                                    Changes During period
                                                                2002                      2003
                                  2002        2003    1st Half 2nd Half    Year 1st Half 2nd Half     Year
Sources of Funds
      Private sector          21,246.5     27,344.4    256.7    3,330.6   3,587.3 2,447.6 3,650.3 6,097.9
      Official Sector
      Deposits1                1,585.5      1,148.2     -76.7    245.5     168.8    -198.1   -239.2 -437.3
      Borrowing from the
      Reserve Bank                     -          -         -         -         -       -       -       -
      Foreign Borrowing        1,118.0      1,602.9     146.3     -44.0     102.3   -68.4   553.3 484.9
      Capital Accounts         4,902.6      6,563.9     578.4     593.7   1,172.1   977.6   683.7 1,661.4
      All other liabilities2   4,502.4      4,672.3     402.1     780.7   1,182.8   460.5 -290.6 169.9
         Total                33,355.0     41,331.7   1,306.8   4,906.5   6,213.3 3,619.2 4,357.5 7,976.7
  Uses of Funds
   Domestic credit to:
      Private sector (gross)   7,363.5      9,808.7    383.9     525.5     909.4 2,302.0     143.3 2,445.3
      Statutory bodies
      (gross)                    676.5       277.4     196.2      -94.9    101.4    -505.6   106.6 -399.1
      Central Government
      (gross)                  6,748.3     10,967.5   2,453.2   1,563.7   4,016.9 2,615.6 1,603.5 4,219.2
         Sub-total            14,788.3     21,053.6   3,033.3   1,994.4   5,027.7 4,412.0 1,853.3 6,265.4
      Deposits with
      Reserve Bank plus
      currency in banks        4,837.7      5,350.2   1,492.4   2,171.4     679.0 -2,654.9 3,167.4 512.5
      Foreign assets           4,296.4      5,613.5     237.4   1,062.6    -824.9    966.2    350.9 1,317.1
      All other assets2        9,432.6      9,314.3    -471.7   1,803.3   1,331.5    896.2 -1,014.5 -118.3
          Total               33,355.0     41,331.7   1,306.9   4,906.5   6,213.3 3,619.5 4,357.2 7,976.7
Source: Reserve Bank of Malawi
1
  Statutory bodies and local authorities
2
  Including interbank accounts




                                                                                                         49
3.5.4     Reserve Bank of Malawi:                         was a net provider of funds of the central
          Sources and Uses of Funds                       bank.

Total resources of the central bank                       Demand for the kwacha by the private
increased by K2,126.0 million (5.9                        sector for transactional purposes also
percent) to K37,956.8 million. In contrast                contributed      significantly    towards
to the experience in 2002 where the                       availability of resources to the central
foreign sector was the major source of                    bank. Currency outside banks rose by
funds, in 2003 the government sector                      K1,874.4 million to K7,838.3 million from
and private sector were the largest                       K5.964.0 million in 2002. In order to meet
contributors to the central banks                         the increased demand for the kwacha by
resources.                                                the public the commercial banks also
                                                          increased their holdings of the local
The government sector deposits with the                   currency in their vaults by K348.6 million
monetary authorities rose by K2,559.7                     compared to an increase of K176.4
million. The increase was largely due to                  million in 2002. The commercial banks,
resumption of donor inflows during the                    through bankers‟ deposits in Reserve
fourth quarter of the year. However,                      Bank of Malawi, contributed K838.4
credit to government which is major user                  million to the increase in the resources,
of funds, also reflected a decline in                     reflecting an increase in bank deposits,
absorption from an increase of K7,561.0                   which led to an increase in the statutory
million in 2002 to an increase of K1,299.6                reserve requirement that had to be
million in 2003, as a result government                   maintained with the central bank.

          Table 12: Reserve Bank of Malawi: Sources and Uses of Funds (K‟mn)
                           End month balance                      Changes during period
                                                             2002                       2003
                                 2002       2003 1st Half    2nd Half   Year 1st Half 2nd Half             Year
Sources of Funds:
   Private sector:
  Currency outside banks 5,964.0 7,838.4 2,001.7                 -104.1 1,897.6 1,862.9           11.5 1,874.4
   Official sector deposits:
     Statutory bodies             85.7       85.7     -127.4       65.8      -61.7         -         -         -
      Central Government      3,571.8 6,045.9          562.8      910.1 1,472.9 1,152.1 1,322.0 2,474.1
       Sub-total              9,621.4 13,969.9 2,437.1            871.8 3,308.9 3,015.0 1,333.5 4,348.5
   Banks:
   Currency in banks          1,100.7 1,449.3         -241.7      418.1      176.4     -21.4    370.0     348.6
   Deposits in Reserve
   Bank                       3,616.8 4,455.2 -1,046.3          1,489.0      442.7 -2,687.3 3,525.7       838.4
   Capital reserves and
   all other liabilities1    21,491.9 20,839.2 -1,371.9         7,808.1 6,436.3 -4,164.6 3,511.9         -652.7
       Total                 35,830.8 37,956.9        -222.7 10,587.0 10,364.3        -912.8 3,038.9 2,126.1
Uses of Funds
  Domestic credit (gross):
  Statutory bodies                   -          -          -     -313.7     -313.7         -         -         -
   Central Government2       13,407.4 14,707.0 -2,008.9         9,569.9 7,561.0 2,102.9 -803.3 1,299.6
   Commercial Banks                3.3        2.9        2.4        -2.7      -0.3      -0.5       0.1      -0.4
   Foreign assets (gross) 14,030.4 13,798.3 1,141.6              -691.3      450.3 -4,258.4 4,026.3      -232.1
   All other uses             8,389.5 9,448.7          642.1    2,024.6 2,666.7 1,243.4 -184.2 1,059.2
       Total                 35,830.6 37,956.9        -222.7 10,587.0 10,364.3        -912.6 3,038.9 2,126.1
Source: Reserve Bank of Malawi
1
  Including allocation of special drawing rights in the IMF, International Agencies and other foreign Banks
2
 .Ways and Means Advances plus holding of Local Registered Stocks and Treasury Bills




                                                                                                             50
All other assets and investment                Other liabilities on the other hand,
government security were the major uses        increased by K338.0 million and the
of funds. However, unlike in 2002,             major increase came from liabilities to
government usage of central banks funds        other banks, which increased, by K15.0
declined     when    gross     credit    to    million. This reflected increased activities
government increased by K1,299.6               of borrowing and lending among the
million compared to an increase of             banks.
K7,561.0 million in 2002. The central
banks holdings of government paper             These institutions used most of the
increased by K1,355.0 million, in              mobilized funds for credit purposes. Total
addition, the outstanding stock of ways        domestic credit amounted to K5,093.1
and means advances of the government           million out of the total resource base of
rose by K492.7 million.                        K7,151.8 million. Much of the total credit
All others assets rose during the year by      went to government amounting to
K1,059.2 million to K9,448.8 million           K3,865.1      million,    representing    an
compared to an increase of K2,666.7            increase of K1,695.8 million. The credit
million during the preceding year. The         extended to government was in form of
rise in these balances was mainly due to       Treasury Bills and amounted to K3,654.8
revaluation surplus on fixed assets of the     million. The increase (K1,678.8 million)
central bank.                                  from the previous year‟s levels was partly
                                               attributed to high yields on Treasury Bills
The central bank‟s investment in the           during the first half of the year as the
foreign sector declined when gross             yields declined during the later part of the
foreign assets decreased by K231.1             year. Local Registered Stocks increased
million to K13,798.2 million compared to       by K16.8 million to K191.8 million from
an increase of K450.3 million during in        the previous year‟s levels. Credit to the
2002. The decline was partly due to            private sector, which was mainly in form
lower proceeds from tobacco exports            of agriculture, commercial and industrial
coupled with increased domestic demand         decreased by K791.9 million to K1,188.0
for foreign exchange, which resulted in        million during the year under review. This
the central bank offloading its foreign        was partly due to high lending rates that
reserves to meet domestic demand.              prevailed during the year before the rates
                                               were adjusted downwards towards the
3.5.5   Other Financial Institutions           end of the year. The noted decline was
                                               also affected by the merger of CBM
During the year 2003, total resources of       Financial Services to its parent bank
all other financial institutions amounted to   (Stanbic Bank), which was contributing
K7,151.8 million, an increase from             significantly to lease financing.
K5,631.3 million recorded last year. This
was mainly attributed to domestic              With regard to contribution to major
currency deposits amounting to K5,416.0        monetary aggregates, these institutions
million and represented an increase of         contributed 1.8 percent to net foreign
K1,182.5 million from last year‟s position.    assets, an increase of 1.8 percent. They
Most of these deposits were in form of         also contributed 15.8 percent to credit to
savings and time deposits particularly         government, an increase from 11.6
with New Building Society because of           percent recorded during the preceding
their low minimum book balance. Higher         year. As mentioned above, the higher
and attractive interest rates during the       percentage share was attributed to high
year also contributed to an increase in        yields on Treasury Bills, which increased
deposits with other financial institutions.    their participation. The percentage share




                                                                                        51
of credit to the private sector, however,     in the preceding year. Similarly,
declined during the year to 9.3 percent       commercial banks‟ holdings increased by
from 17.0 percent recorded during the         K7,191.2 million to K12,987.3 million,
preceding year. This was attributed to        representing 27.62 percent of the total
high lending rates during the year under      stock. Holdings of discount houses and
review.                                       the non-bank sector recorded increases
                                              of K5,140.2 million and K4,490.8 million
3.5.6   Money Market                          to K7,199.4 million and K14,399.2 million,
                                              representing 15.31 and 30.62 percent,
Total subscriptions on the money market       respectively.
amounted to K57,330.7 million out of an
offer amount of K66,500 million in 2003.      Banking      system   excess      reserves
This represented a more than two-fold         dropped from a monthly average of
increase on the preceding year, a             K247.7 million in 2002 to K145.3 million
reflection of increased demand for credit     in 2003. This development was largely
by Government to finance the budget           the result of intensive open market
which suffered from the suspension of         operations, which were aimed at
donor aid during most of 2003. Thus           controlling the growth in reserve money.
allotments increased to K47,677.5 million     The drop in liquidity was reflected in a
from K21,076.9 million in the preceding       K13,471.6 million year-on-year increase
year. Exhibiting the same trend,              in inter-bank borrowing to K77,271.1
conversions of Government‟s ways and          million. This did not however translate
means advances into Treasury bills            into an increase in discount window
almost doubled to K36,568.8 million,          borrowing,      which    dropped      from
bringing the total amount of new issues in    K21,947.1 million in 2002 to K8,886.6
2003 to K84,246.3 million.                    million in 2003. This was due to a strict
                                              accommodation policy, which was
Notwithstanding the massive increase in       adopted      to   complement     intensive
allotments, Treasury bill yields registered   monetary operations.
significant year-on-year drops during
2003. This was largely the result of a 10-    Reflecting the 10-percentage point
percentage point downward adjustment          downward adjustment in the Bank rate
in the Bank rate, which took place            during the period between mid-November
between mid-November and early                and early December 2003, the inter-bank
December 2003. The Bank rate dropped          rate dropped from 36.92 percent at end
                               th
from 45 to 40 percent on 11 November          of 2002 to 26.00 percent at end
                       th
and to 35 percent on 5 December 2003.         December 2003.
Consequently, the all-type T-bill yield
closed 2003 at 33.58 percent, a 9.39          Compared to 2002, open market
percentage point decline on the               operations were more contractionary
preceding year.                               during 2003 as evidenced by a K1,974.5
                                              million year-on-year increase in net
The surge in TB allotments, especially on     liquidity withdrawn from the economy.
account of conversions resulted into a        Total injections from maturing bills
K18,096.6 million year-on-year increase       amounted to K63,990.4 million. Against
in the outstanding stock to K47,029.4         this injection, K71,806.5 million was
million as at end of 2003. Representing       withdrawn through RBM bill issues and
26.46 percent of total outstanding stock,     secondary market Treasury bill sales
the Reserve Bank‟s holdings increased to      from the OMO portfolio. Further to this,
K12,443.5 million from K11,169.1 million      net     foreign   exchange   operations




                                                                                     52
withdrew about K900 million, bringing the    The number of listed companies on the
overall amount of liquidity withdrawn from   local bourse therefore remained at nine
the economy to K8,804.5 million.             During the period under review, a total of
                                             181,872,236 shares with a total turnover
Notwithstanding the restrictive monetary     of K808.1 million were traded in 292
policy stance as evidenced by the year-      trades.
on-year increase in open market
operations, the average RBM bill yield       The Malawi All Share Index (MASI) which
dropped from 36.48 percent recorded at       opened at 313.40 points rose to 327.58
end December 2002 to 33.76 percent for       points in the second quarter. The rise in
end December 2003. The drop in the           MASI was attributed to the increase in
yield was a reflection of the downward       Foreign Share index (FSI) from 128.20 to
adjustment in the Bank rate, which stood     134.48 points. FSI rose at the back of the
at 35 percent as at end December 2003        price rise in Old Mutual shares from
from 45 and 40 percent at end November       K102.00 to K107.00 per share. During
and early December 2003, respectively.       the same period, Domestic Share Index
                                             (DSI) dropped from 233.35 to 207.77
3.5.6.1 Capital Market                       points, however, the drop was too small
                                             to bring a negative impact on MASI. The
There was no issue of Local Registered       decline in DSI was a result of the loss in
Stocks in the year 2003, however there       price of PCL, Stanbic and NBM shares,
was redemption to the tune of K25.7          which fell from K13.00 to K7.50, K6.40 to
million and conversion of K43.7 million.     K6.30 and K6.15 to K6.00 per share
The outstanding stock of LRS as at           respectively. MASI gained in the third
December 2003 stood at K3.752 billion        quarter and recorded 472.47 points due
compared to K3.777 billion recorded in       to a further increase in FSI from 134.48
2002.                                        to 195.19 points. The increase was
                                             attributed to the rise in price of OML
During the review period, there were no      shares from K107.00 to K155.30 per
trades in the secondary market for LRS.      share. MASI however, closed slightly
However there was one trade in Treasury      lower at 457.27 points as FSI dropped to
Notes amounting to K33.0 million. The        188.53 points. The fall in FSI was at the
LRS market remained dormant despite          back of the loss in price of OML from
the decline in the Treasury Bills yield      K155.30 to K150.00 per share. In 2002
indicating investors continued preference    MASI stood at 313.40 points.
of short-term instruments to long-term       Market Capitalisation, which opened at
instruments.                                 K395.2 billion, closed higher at K584.1
                                             billion at the end of the year. Market
There was no new stock introduced on         Capitalisation stood at K395.2 billion at
the stock market during the year 2003.       the end of the year 2002.




                                                                                    53
4.      Prospects for the Year                 significantly. Consequently, the current
        2004.                                  account deficit is expected to grow. The
                                               Malawi kwacha is expected to depreciate
The Malawi economy is projected to grow        further against the currencies‟ of the
by 3.6 percent in 2004 compared to 4.4         country‟s major trading partners. Foreign
percent for 2003. The slow economic            exchange inflows are however expected
growth is premised on lower agricultural       to remain firm in 2004 due to a rise in
output due to erratic rainfall and floods in   exports supported by a promising
some parts of the country. Agricultural        projection of donor inflows.
production is projected to grow by 4.1
percent compared to 6.8 percent in 2003.       Debt stock in 2004 is expected to
However, slightly more growth is               decline, while debt service is expected to
expected in the non-agriculture sector         remain stable with the shifting of the
from 2.9 percent in 2003 to 3.4 percent in     completion point to December 2004.
2004 with faster growth emanating from
manufacturing, utilities and distribution.     Monetary management in 2004 will be
                                               more challenging as the central bank will
The investment/GDP ratio is projected to       continue to aim at containing inflation and
go down from 8.8 percent in 2003 to 7.3        at the same time try to pursue a relaxed
percent in 2004 largely due to declines in     monetary policy to allow for a reduction in
both domestic and foreign savings. With        interest rates. The abatement of
the consumption/GDP ratio remaining            monetary conditions shall, therefore
stable, total domestic demand is thus          largely depend on the perfomance of the
projected to drop by about one                 other three macro-ares;the fiscal sector,
percentage point. The export/GDP ratio         blance of payments and production and
is projected to increase marginally to         prices. Continued financing of the budget
19.1 percent but the import/GDP ratio will     deficit shall immediately translate into an
remain the same at about 33.6 percent.         intensification of monetary operations
                                               and hence a rise in money market rates
The rate of inflation is forecast to average   and the general interest rate structure.
about 12.0 percent in 2004, up from 9.6
percent in 2003. Inflationary pressures        The central government is expected to
are expected to originate from lower           realise more revenues as a result of
maize output, cost-push forces from            increased campaign by the Malawi
expected depreciation in the exchange          Revenue        Authority   to     improve
rate and monetary expansion in view of         compliance. Expenditures however are
the general elections.                         also expected to increase particularly in
                                               the first and second quarter of 2004 as a
The external sector performance is             result of the national elections period.
projected to deteriorate marginally in         With improved adherence to donor
2004. Despite a rise in exports that is        requirements it is envisaged that
expected to outweigh a parallel rise in        revenues inform of grants will also pick
imports during the year, non-factor            up, continuing the trend assumed from
payments are expected to increase              the last quarter of 2003.




                                                                                       54
5.          Statistical Annex Section
Table No.                                                                                                                  Page


Banking System
Table 1: Reserve Bank of Malawi: assets and Liabilities ......................................................... 56
Table 2: Monetary Authorities: Assets and Liabilities .............................................................. 57
Table 3: Commercial Banks: Assets and Liabilities ................................................................. 58
Table 4: Monetary Survey ........................................................................................................ 59
Table 5: Money and Quasi-Money ........................................................................................... 60
Table 6 Official Foreign Exchange Reserves and Net Foreign Assets of Commercial Banks. 60
Table 7: Commercial Banks: Advances by Main Sector .......................................................... 61
Table 7.1 Commercial Banks: Demand Deposits by Main Sector ............................................. 61
Table 8: Principal Interest Rates as at 31st December 2003 .................................................. 62

Other Financial Institutions
Table 9: Other Financial Institutions: Summary of Assets ......................................................... 63


Government Finance
Table 10: Central Government Operations: Revenues ............................................................. 64
Table 11: Central Government Operations: Expenditures ......................................................... 65
Table 12: Stocks Managed by the Reserve Bank of Malawi as at 31 December 2003 .............. 66

Balance of Payments
Table 13: Balance of Payments Summary ................................................................................ 67
Table 14: Domestic Exports by Main Commodity ...................................................................... 68
Table 15: Commodity Imports and Exports ................................................................................ 68

National Accounts and General Economic Indicators
Table 16: Expenditure on Gross Domestic Product .................................................................. 69
Table 17: Gross Domestic Product by Economic Activity .......................................................... 69
Table 18: The National Composite Price Index ......................................................................... 70
Table 19: Gross Domestic Investment and its Financing .......................................................... 70
Table 20: Sundry Economic Indicators ....................................................................................... 71




                                                                                                                                55
                     Table 1: Reserve Bank of Malawi: assets and Liabilities (K‟mn)
                                             1997       1998       1999       2000       2001       2002      2003
Liabilities
 Foreign
  Deposits of international agencies etc       1.8        2.5       27.5        0.3        3.7        0.4      0.4
  Others                                   2,246.0    5,798.8    3,997.7    8,211.2    4,892.6   12,566.6 11,913.9
   Sub-total                               2,247.9    5,801.3    4,025.2    8,211.4    4,896.4   12,567.0 11,914.3
Official
  Central government deposits               207.2     4,480.5    3,256.5    1,429.4    2,098.8    3,571.8   6,131.5
  Statutory bodies, etc, deposits             0.4       114.3       17.4       17.4      147.4       85.7         0
   Sub-total                                207.6     4,594.8    3,273.9    1,446.8    2,246.2    3,657.5   6,131.5
Banks
 Deposits with RBM                         1,716.8    2,078.3    2,319.5    1,432.3    3,174.1    3,616.8   4,455.2
 Currency in banks                           249.7      249.7      618.1      653.3      924.3    1,100.7    1449.4
  Sub-total                                1,900.8    2,328.0    2,937.6    2,085.6    4,098.4    4,717.5   5,904.5
Private sector
 Currency outside banks                    1,375.3    1,980.0    2,992.0    4,144.9    4,066.3    5,964.0   7,838.3
 Other Capital, reserves and undistri-
 buted income                               -374.8    3,437.9    3,324.5    8,064.7    9,231.8    7,629.2   4,397.6

 Allocation of Special Drawing Rights        314.3      655.5      692.6    1,145.0      927.4    1,295.4 1,770.6
  Total liabilities                        5,671.2   18,797.6   17,245.7   25,098.4   25,466.5   35,830.6 37,956.8
Assets
 Foreign
 Balances with banks abroad                2,879.9   10,712.3   11,223.7   19,145.1   13,331.7   13,752.9 13,376.9
 Bills and other securities                  312.7       94.3          -          -          -          -        -
 Holding of Special Drawing Rights           101.8      508.6      114.5      271.1      248.4      277.5    421.3
  Sub-total                                3,294.4   11,315.2   11,338.2   19,416.2   13,580.1   14,030.4 13,798.2
 Official
 Treasury Bills loans and advances           682.1    3,535.0    2,376.4     444.9     5,845.4   12,175.6 13,580.7
  Local Registered Stocks                    194.9      192.9      182.9       0.9         0.9    1,231.8 1,126.3
 Statutory bodies                            187.5      191.4      274.6     313.7       313.7          -        -
  Sub-total                                1,064.4    3,919.3    2,833.9     759.6     6,160.1   13,407.4 14,706.9
 Banks
 Loans, advances and other                     9.8        9.4        8.2     112.2         3.5        3.3       2.9
 Internal bills purchased and discounted         -         -           -          -          -          -        -
  Sub-total                                    9.8       9.4         8.2      112.2        3.5        3.3      2.9
 Other assets                              1,302.4   3,553.7     3,065.5    4,810.4    5,093.8    8,389.5 9,448.8
  Total assets                             5,671.2 18.797.58    17,245.7   25,098.4   25,466.5   35,830.6 37,956.8
                                                           1
Source: Reserve Bank of Malawi




                                                                                                               56
                            Table 2: Monetary Authorities: Assets and Liabilities (K‟mn)
                                          1997       1998       1999       2000       2001        2002      2003
Liabilities
  Foreign Deposits of international
   agencies, etc                        2,247.9    5,801.3    4,025.2    8,211.4    4,896.4    12,567.0 11,914.3
  Official
  Central Government deposits
  with Reserve Bank                       207.2    4,480.5    3,256.5    1,429.4    2,098.8     3,571.8   6,131.5
  Treasury holdings                        74.1      84.1       84.1       84.1        84.1       84.1     330.1
    Sub-total                             291.3    4,564.6    3,340.6    1,513.5    2,182.9     3,655.9   6,461.6
  Statutory bodies
     Deposits with Reserve Bank             0.4     114.3       17.4       17.4      147.4        85.7           0
     Special account balance                  -          -          -          -           -          -          -
     Sub-total                              0.4     114.3       17.4       17.4      147.4        85.7           0
     Total official                       291.7    4,678.9    3,358.0    1,530.9    2,330.3     3,741.6   6,461.6
  Banks
     Currency in banks                    184.1     249.7      618.1      653.3      924.3      1,100.7   1,449.4
     Deposits with Reserve Bank         1,716.8    2,078.3    2,319.5    1,432.3    3,174.1     3,616.8   4,455.2
     Sub-total                          1,900.8    2,328.0    2,937.6    2,085.6    4,098.4     4,717.5   5,904.5
  Private sector
  Currency outside banks                1,375.3    1,980.0    2,992.0    4,144.9    4,066.3     5,964.0   7,838.3
  Capital, reserves, SDR allocation       -60.5    4,093.4    4,017.1    9,209.7   10,159.2     8,924.6   6,168.2
      Total liabilities                 5,735.3   18,881.7   17,329.8   25,182.5   25,550.6    35,914.7 38,286.9
Assets
   Foreign
   Reserve Bank1                        3,294.4   11,315.2   11,338.2   19,416.2   13,580.1    14,030.4 13,798.2
   Treasury balances with Crown
   Agents                                  84.1      84.1       84.1       84.1        84.1       84.1     330.1
   Reserve position in IMF                    -          -          -          -           -          -          -
   Special account balance                    -          -          -          -           -          -          -
       Sub-total                        3,378.5   11,399.3   11,422.3   19,500.3   13,664.2    14,114.5 14,128.3
   Official
    Reserve Bank Credit
         Central Government               877.0    3,727.9    2,559.3     445.8     5,846.3    13,407.4 14,706.9
         Statutory bodies                 187.5     191.4      274.6      313.7      313.7            -          -
         Sub-total                      1,064.4    3,919.3    2,833.9     759.6     6,478.2    13,407.4 14,706.9
    Banks
       Reserve Bank claims on
       other banks                          9.8        9.4        8.2     112.2         3.5         3.3       2,9
         Other assets                   1,302.4    3,553.7    3,065.5    4,810.4    5,448.2     8,389.5   9,448.8
         Total assets                   5,755.3   18,881.7   17,329.8   25,182.5   25,550.6    35,914.7 38,286.9
 Source: Reserve Bank of Malawi and Treasury
 1
   Including holding of Special Drawing Rights




                                                                                                            57
                           Table 3: Commercial Banks: Assets and Liabilities (k‟mn)
                                                 1998       1999       2000       2001       2002      2003
Liabilities
 Foreign
    Deposits of non-residents                   584.9      723.1     1,325.1     803.3      892.9 1,271.1
    Liabilities to foreign banks                  18.5      21.3       24.6      212.5      225.1     331.8
      Sub-total                                 603.5      744.4     1,349.9    1,015.7    1,118.0    518.9
 Official
    Deposits of Central government              891.0     1,121.6     674.3      565.8      788.6     629.3
    Deposits of Statutory bodies and
    local authorities                           573.3      411.4      467.4      850.9      796.9 1,148.2
       Sub-total                               1,464.3    1,532.9    1,141.7    1,416.7    1,585.5 1,148.2
  Domestic banks
    Liabilities to RBM                             3.0          -          -          -          -        -
    Liabilities to other domestic banks           60.9      51.9      209.8      150.6      401.9      75.2
       Sub-total                                  63.9      51.9      209.8      150.6      401.9      75.2
  Domestic private sector
    Demand deposits                            2,405.0    3,424.5    4,626.3    6,277.1    7,476.1 9,625.9
    Time and savings deposits                  4,256.2    5,129.1    7,673.1   11,382.1   13,770.4 17,718.5
    Capital accounts                           1,413.4    2,152.8    2,937.6    3,730.4    4,902.6   6,563.9
       Sub-total                               8,074.6   10,706.4   15,237.0   21,389.6   26,149.1
  Other liabilities                            1,442.8    1,585.6    2,665.6    3,169.1    4,100.5   4,597.2
       Total liabilities                      11,649.0   14,621.3   20,603.7   27,141.7   33,355.0 41,331.7
Assets
  Foreign
    Claims on foreign banks                    2,633.0    2,194.9    4,312.6    5,118.1    4,188.7   5,604.0
    Loans and Advances, bills payable to
    non-residents                                  0.0        0.7        0.6        3.3     107.7        9.5
       Sub-total                               2,633.0    2,195.6    4,313.2    5,121.3    4,296.4   5,613.5
  Official claims on Central government
    Local Registered Stock                      220.4      273.3      356.7     1,849.6    1,932.5   1,880.1
    Treasury Bills                             1,082.0     953.8     1,502.5     881.8     4,815.8   9,087.4
       Sub-total                               1,302.4    1,227.2    1,859.2    2,731.4    6,748.3 10,967.5
  Claims on statutory bodies                    185.8     1,442.9    1,218.2     575.1      676.5     277.4
       Total official                          1,488.2    2,670.4    3,077.4    3,306.6    7,424.8 11,244.9
  Domestic banks
    Claims on Reserve Bank
    Deposits and currency1                     2,176.4    2,761.9    2,505.0    5,592.8    6,179.8 5,690.2
    Claims on other domestic banks              434.0      860.4      911.0     1,610.8    1,205.1 1,225.7
       Sub-total                               2,610.4    3,622.3    3,416.0    7,203.6    1,205.1 6,915.9
    Domestic private sector Loans and
    advances                                   3,186.2    3,365.3    5,043.7    6,396.9    7,362.2 9,668.2
    Bills discounted and purchased                   -          -          -       57.1        1.2    140.5
       Sub-total                               3,186.2    3,365.3    5,043.7    6,454.0    7,363.5 9,808.7
    Other assets                               1,731.2    2,768.1    4,753.4    4,599.8    6,885.3 7,748.7
       Total assets                           11,649.0   14,621.3   20,603.7   27,141.7   33,355.0 41,331.7
         Source: Commercial banks‟ reports
         1
          Including Reserve Bank of Malawi Bills




                                                                                                               58
                                         Table 4: Monetary Survey: (K‟mn)
                                                   1999            2000        2001       2002       2003
Net foreign assets
   Monetary authorities                          7,397.1        11,288.9     8,767.8    1,547.5    2,304.9
   Commercial banks                              1,451.2         2,963.5     4,105.6    3,178.4    4,010.6
Total net foreign assets                         8,848.3        14,252.4    12,873.4    4,725.9    6,315.5
Net domestic credit
   Official Sector
   Claims on central Government
         Monetary authorities                     -781.3        -1,067.6     3,663.4    9,751.5    8,154.5
         Commercial banks                          105.6         1,185.0     2,165.6    5,959.7   10,448.5
            Sub-total                             -675.7          117.3      5,829.0   15,711.2   18,603.1
   Claims on statutory bodies
         Monetary authorities                      257.2          296.4       166.4       -85.7     -351.8
         Commercial banks                        1,031.5          750.8       -275.8     -120.5     -351.8
            Sub-total                            1,288.7         1,047.1      -109.4     -206.2   18,251.2
            Total official sector                  613.0         1,164.4     5,719.6   15,505.1    9,808.7
   Private Sector
         Gross claims of commercial
         banks                                   3,365.3         5,043.7     6,454.0    7,363.5   28,059.9
            Total net domestic credit            3,978.3         6,208.1    12,173.6   22,868.5          -
Total net domestic credit and net
foreign assets                                  13,613.2        14,605.3    12,873.4    4,725.9   17,464.2
Liabilities to private sector
   Money                                         6,416.5         8,771.1    10,343.4   13,440.0   17,404.2
   Quasi-money                                   5,129.1         7,673.1    11,382.1   13,770.4   17,718.5
            Sub-total                           11,545.6        16,444.2    21,725.5   27,210.4   35,182.7
Capital accounts                                 2,152.8         2,937.6     3,730.4    4,902.6    6,563.9
            Sub-total                           13,698.4        19,381.8    25,455.9   32,113.0   41,746.6
Unsectored accounts (net)                         -396.0          838.4       845.6    -4,518.6   -7,371.1
            Total domestic liabilities          13,613.2        21,453.0    26,301.6   27,594.4   34,375.5
Source: Reserve Bank of Malawi




                                                                                                      59
                                    Table 5: Money and Quasi-Money (K‟mn)
                                               1998               1999              2000             2001         2002       2003
Money
     Currency outside banks                  1,980.0          2,992.0              414.9           4,066.3      5,964.0    7,838.2
     Demand deposits                         2,405.0          3,424.5             4,626.3          6,277.1      7,470.1    9,625.9
           Total money                       4,385.1          6,416.5             8,771.1         10,343.4     13,440.0   17,464.2
Quasi-money                                  4,256.2          5,129.1             7,673.1         11,382.1     13,770.0   17,718.5
     Total money and quasi-money             8,641.2         11,545.6            16,444.2         21,725.5     27,210.4   35,182.7
Source: Reserve Bank of Malawi

   Table 6 Official Foreign Exchange Reserves and Net Foreign Assets of Commercial Banks
                                           (K‟mn)
                                                          1998           1999          2000            2001       2002       2003
Official Foreign Exchange Reserves
  Reserve Bank Foreign Assets:
    Deposits abroad and foreign securities             10,806.6     1,223.7        19,145.1         13,331.7   13,752.9   13,376.9
     Special Drawing Rights                              508.6           114.5        271.1           248.4      277.5       421.3
              Sub-total                                11,615.2    11,338.2        19,416.2         13,580.1   14,030.4   13,798.2
  Reserve Bank Foreign Liabilities:                     5,801.3     4,025.2          8,211.4         4,896.4   12,567.0   11,914.3
     Net foreign exchange reserves                      5,513.9     7,313.0        11,204.8          8,683.7    1,463.4    1,883.9
     Treasury Balances with Crown Agents and
     Special Account                                       84.1           84.1         84.1             84.1       84.1      420.9
              Total (Net)                               5,598.0     7,397.1        11,288.9          8,767.8    1,547.5    2,304.9
  Commercial Banks
     Foreign assets
        Claims on foreign banks                         2,633.0     2,194.9          4,312.6         5,118.1    4,188.7    5,604.0
        Loans and advances to non- residents
        and bills payable abroad                            0.0            0.7              0.6          3.3     107.7         9.5
              Sub-total                                 2,633.0     2,195.6          4,313.2         5,121.3    4,296.4    5,613.5
     Foreign liabilities
           Liabilities to foreign banks                    18.5           21.3         24.6           212.5      225.1       331.8
           Deposits of non-residents                     584.9           723.1       1,325.1          803.3      892.9     1,271.1
              Sub-total                                  603.5           744.4       1,349.7         1,015.7    1,118.0    1,602.9
              Total (Net)                               7,627.5     8,848.3        14,252.4          4,105.6    3,178.4    4,010.0
Source: Reserve Bank of Malawi




                                                                                                                            60
                         Table 7: Commercial Banks: Advances by Main Sector (K‟mn)
                                                1998        19993                2000         2001        2002       2003
               1
Agriculture                                     552.0       617.4               498.8        565.5        128.2     600.0
Mining and Quarrying                              5.6            6.2               9.1        36.6          8.9        1.3
Manufacturing                                   573.7       914.3              1,228.9      2,206.9     1,141.0    2,605.8
Electricity, Water and Gas                        3.2            4.0            195.3        455.9        491.1     131.6
Construction and Civil Engineering              135.7       151.4               378.0        489.9        140.8     810.1
Wholesale and Retail Trade                      719.4      1,259.9             1,119.8       939.2        858.0     352.5
Transport, Storage and Communications            63.0           93.2           1,192.4       268.7        148.8     745.5
Finance, Insurance, Real Estate and
Business Services                               332.6       688.2               506.9        271.8        111.0     681.9
Community, Social and Personal
Services                                        140.8       152.7               848.6        148.8        940.6     644.5
Personal Accounts                               787.4       341.7               632.7       1,165.9         2.1    1,847.5
Total2                                     3,313.5         4,229.0             6,610.5      6,549.2     3,970.5   10,620.8
Source: Commercial banks‟ reports to Reserve Bank
1
 Includes forestry fishing and livestock
2
 Excludes statutory bodies and local authorities
3
 Figures starting from December 1999 include Finance Bank of Malawi, First Merchant Bank and Malawi
Savings Bank

                   Table 7.1 Commercial Banks: Demand Deposits by Main Sector (K‟mn)
                                        1997            1998           19993         2000      2001       2002       2003
Agriculture1                           234.7            389.7          560.3        220.3     161.4      239.7      266.5
Mining and Quarrying                      2.2             8.0           20.5         14.6        3.0      30.4       52.5
Manufacturing                           94.4            167.3          593.1      1,329.4    1,173.0    1,682.9    1,509.3
Electricity, Water and Gas                1.8            10.3           13.6         92.8     107.1      238.0      338.0
Construction and Civil
Engineering                             47.0            117.1          256.0        272.1     331.9      355.2      389.1
Wholesale and Retail Trade             253.1            561.2          822.9      1,276.7    1,336.4    2,718.6    2,005.6
Transport, Storage and
Communications                          58.4            205.3          226.7        397.1     335.9      538.1      589.5
Finance, Insurance, Real Estate
and Business Services                  141.0            516.7          800.7      1,133.8     859.8     1,034.6    1,950.4
Community, Social and Personal
Services                               249.7            583.9      1,160.6        1,851.9    1,828.2    2,159.2    2,015.6
Personal Accounts                      570.3        2,150.4        1,092.9        1,433.2     802.4     1,284.0    8,838.7

Total2
                                      1,652.6       4,709.9        5,547.3        8,022.0    6,939.1   10,280.7   11,172.4
Source: Commercial banks‟ reports to Reserve Bank
1
 Includes forestry fishing and livestock
2
 Excludes statutory bodies and local authorities
3
 Figures starting from December 1999 include Finance Bank of Malawi, First Merchant Bank and Malawi
Savings Bank




                                                                                                                      61
                          Table 8: Principal Interest Rates as at 31st December 2003
                                                                                           2003
                              Jan        Feb        Mar        Apr        May        Jun        Jul          Aug        Sep        Oct        Nov        Dec
Bank Rate                       40.0       40.0       40.0       40.0       40.0       45.0           45.0     45.0       45.0       45.0       45.0       35.0
Treasury Bills
     91 Days                    37.4       37.2       37.3       37.8       37.9       43.2           43.7     43.7       44.1       41.6       34.2       33.1
     182 Days                   38.1       38.1       38.8       38.9       38.1       42.8           44.5     43.8       44.1       43.1       34.0       34.0
     271 Days                   38.4       38.3       39.4       39.5       39.4       43.8           44.0     44.0       44.1       42.6       34.6       33.9
RBM Bills
     63 Days                    37.1       37.0       37.0       37.2       37.4       39.9           42.4     39.9       39.9       39.8       35.8       33.0
     91 Days                    37.0       37.0       37.4       37.6       37.8       43.4           44.0     42.5       42.4       41.7       37.9       34.5
Commercial Banks
Base rates                      41.5       41.5       41.5       41.5       41.5       46.0           46.5     46.5       46.5       46.5       41.5       36.0
Savings Deposits                20.3       20.3       20.3       20.3       20.3       23.3           23.3     23.3       23.3       23.3       18.5       14.3
  Short Term deposit
     7 Days call                18.5       18.5       18.5       18.5       18.5       22.3           22.3     22.3       22.3       22.3       17.3       14.0
     30 Days call               21.5       21.5       21.5       21.5       21.5       25.3           25.3     25.3       25.3       25.3       20.3       16.8
  Fixed Deposits
     3 months                   24.0       24.0       24.0       24.0       24.0       28.0           28.0     28.0       28.0       28.0       23.0       18.5
     6 months                   20.5       20.5       20.5       20.5       20.5       25.5           25.5     25.5       25.5       25.5       20.8           ..
     12 months                      ..         ..         ..         ..         ..         ..           ..         ..         ..         ..         ..         ..
Building Societies
  Deposit rates
     Individual savings         16.0       16.0       16.0       16.0       20.0       20.0           20.0     20.0       20.0       20.0       17.0       14.0
     Corporate savings          17.0       17.0       17.0       17.0       22.0       22.0           22.0     22.0       22.0       22.0       20.0       18.0
     3 months fixed
     deposits                   23.0       23.0       23.0       23.0       25.0       26.0           26.0     26.0       26.0           ..     24.0       20.0
  Mortgage rates
     Owner Occupied             31.5       31.5       31.5       31.5       33.5       33.5           33.5     33.5       33.5       33.5       31.0       31.0
     Flats and rented
     houses                     42.0       42.0       42.0       42.0       45.0       45.0           45.0     45.0       45.0       45.0       42.0       28.5
     Commercial properties      45.0       45.0       45.0       45.0       46.0       46.0           46.0     46.0       46.0       46.0       44.0       44.0
Malawi Savings Bank
  Base rates                    43.0       43.0       43.0       43.0       46.0       46.0           46.0     46.0       46.0       46.0       41.0       37.0
  Deposit rates                 13.0       13.0       13.0       13.0       14.0       14.0           14.0     14.0       14.0       14.0       12.0       11.0
    3 months fixed
    deposits                    24.0       24.0       24.0       24.0       30.0       30.0           30.0     30.0       30.0       30.0           ..     20.0
Source: Commercial banks, New Building Society, Post Office Savings Bank and INDEFinance




                                                                                                                                                               62
                      Table 9a: Other Financial Institutions: Summary of Assets (K‟mn)
                                                       1999              2000          2001        2002        2003
Cash in Banks                                          36.4               50.9         67.2        53.4        74.9
Deposits with other domestic banks                    347.4              486.2         85.6       190.4       127.9
Deposits with Reserve Bank                                 -                 -        251.3       362.8       508.9
Foreign assets                                             -                 -             -             -    110.5
Credit to Government                                  553.2              392.0        150.6     2,169.3      3,865.1
Credit to Statutory bodies                             50.0                6.5         48.2        31.8        40.0
Credit to Private sector                             1,407.7        1,658.8         1,807.4     1,980.0      1,188.0
       Total Credit                                  2,010.9        2,505.8         3,275.0     4,181.1      5,093.1
Premises and equipment                                428.6              452.8        438.3       424.6       715.5
Other Assets                                          428.4              581.3        473.7       419.0       516.5
     Total Assets                                    3,251.7        4,076.9         4,591.2     5,631.3      7,151.8



                         9b: Other Financial Institutions: Summary of Liabilities (K‟mn)
                                             1999                2000              2001          2002          2003
Demand                                           -                   -                 -             -             -
Time                                       1,074.5             1,171.9           1,448.2       1,794.9       1,932.9
Savings                                    1,343.2             1,766.7           2,074.5       2,438.6       3,483.1
Foreign Liabilities                              -                   -                 -             -             -
Liabilities to Reserve Bank                    3.9                 2.6               0.9             -             -
Liabilities to other domestic banks           49.0              108.0              33.0          26.8          41.8
Capital and reserves                         365.9              608.8             629.9         932.3        1,283.6
Other Liabilities                            415.1              418.9             404.5         438.7         410.3
     Total Liabilities                     3,251.7             4,076.9           4,591.2       5,631.3       7,151.8




                                                                                                                 63
                       Table 10: Central Government Operations: Revenues (K‟mn)
                                        1998       1999       2000       2001       2002       2003
Tax Revenue                           8,228.7   12,554.7   16,342.8   20,671.6   23,461.9   31,715.5
     PAYE1                            1,511.6    2,419.0    3,025.9    3,690.8    4,275.8    6,021.5
     Company Tax                       448.8      721.2      859.8     1,182.6    2,390.5    3,884.4
     Provisional Tax                  1,091.7    1,551.0    1,921.7    2,019.2    2,018.1    2,578.7
     Withholding Tax                   489.0      858.6     1,242.8    2,098.2    2,722.4    2,852.1
     Import Duty2(incl. surcharge)    1,404.0    2,036.1    2,284.1    2,405.2    2,666.0    3,667.7
     Surtax                           2,805.5    4,446.5    5,779.2    6,147.0    7,708.2   10,583.3
     Miscellaneous Duties               23.3       33.8      183.5      380.9       53.6       87.4
     Excise Duty                       379.6      543.6     1,106.7    2,517.5    2,546.0    3,991.3
     Export Levy                        56.6         0.0        0.0        0.0        0.0        0.0
     Other Taxes                       143.7      213.4      312.5      406.7      573.2     1,231.9
     Collections of Arrears                 -          -          -          -          -        0.0
     Tax Refunds & Adjustment          -125.0     -388.0     -373.3     -176.3     -320.0     -604.2
    Other (non-tax) Revenues           338.1     1,889.4    1,428.6    2,181.6    3,053.5    4,640.8
       Total Revenue                  8,566.8   14,444.1   17,771.4   22,853.2   26,515.4   36,356.2
Source: Ministry of Finance.
1
  Pay As You Earn
2
  Including Import Levy




                                                                                                  64
                    Table 11: Central Government Operations: Expenditures (K‟mn)
                                              Year       1999       2000       2001       2002       2003

Recurrent Expenditure                       8,736.2   14,995.7   20,445.6   26,129.4   39,835.4   50,246.9
      Wages and Salaries                    2,703.0    3,879.0    4,803.2    6,820.9   10,504.7   11,505.4
      Interest Payment                      2,035.5    2,938.7    4,525.0    6,506.4    7,266.7   16,053.2
      Other Expenditure                     3,238.1    5,418.7    8,324.8    7,855.6    5,870.2   13,611.7
      Other current transfers                   0.0        0.0        0.0        0.0    2,707.6        0.0
      Pensions and Gratuities                 534.5      968.9    1,202.7    1,335.7    1,416.1    1,540.8
      Un allocable Expenditures arrears)        0.0      346.4        0.0       70.0       30.0        0.0
      Special Expenditure1                    105.2      653.1       55.6        0.0        0.0      637.6
      Extra-budgetary                         120.0      790.9    1,534.4    2,634.3    9,994.2    6,898.4
      HIPC Expenditure                            -          -          -      906.5    2,045.9        0.0
Development Expenditure                     3,463.9    6,659.7   11,675.8    4,318.9    6,088.5   10,715.3
      Domestically Financed                   862.1    1,597.2    1,812.9    1,751.5    1,451.8    2,055.1
      Foreign Financed                      2,601.8    5,062.5    9,862.9    2,567.5    4,636.7    8,660.2
      Net Lending                                 -          -          -    1,045.3        0.0        0.0
      Lending                                     -          -          -    1,045.3        0.0        0.0
      Repayment                                   -          -          -        0.0        0.0        0.0
  Total Expenditure                        12,200.1   21,655.4   32,121.4   31,493.6   45,923.9   60,962.5
Source: Ministry of Finance
1
 Also includes mostly drought related expenditures




                                                                                                      65
        Table 12: Stocks Managed by the Reserve Bank of Malawi as at 31 December 2003
I. Local Registered Stock issued and managed by Reserve Bank of Malawi


Stock                                                   Amount Issue (K‟000)      Capital outstanding1 (K‟000)
Malawi 37.00% L.R.S Jan 2004                                         600,000                         600,000
Malawi 23.00% L.R.S Feb 2004                                              5,000                         5,000
Malawi 23.00% L.R.S Apr 2004                                              6,000                         6,000
Malawi 23.00% L.R.S Jun 2004                                              4,000                         4,000
Malawi 32.25% L.R.S Jul 2004                                             70,000                        70,000
Malawi 32.25% L.R.S Jul 2004                                         873,883                          873883
Malawi 18.00% L.R.S Sep 2004                                              5,000                         4,900
Malawi 37.50% L.R.S Nov 2004                                         100,000                         100,000
Malawi 19.75% L.R.S Jan 2005                                              4,000                         3,920
Malawi 19.75% L.R.S Jan 2005                                         500,000                         500,000
Malawi 38.00% L.R.S Mar 2005                                             10,000                        10,000
Malawi 21.25% L.R.S Jul 2005                                              3,000                         2,940
Malawi 38.00% L.R.S Jun 2006                                             10,000                         9,800
Malawi 25.50% L.R.S Aug 2006                                         437,000                         437,000
Malawi 25.50% L.R.S Aug 2006                                              5,000                         5,000
Malawi 38.00% L.R.S Sep 2006                                             12,000                        11,760
Malawi 38.00% L.R.S Nov 2006                                              6,000                         5,880
Malawi 38.00% L.R.S Jan 2007                                       1,000,000                        1,000,000
Malawi 38.00% L.R.S Jul 2007                                             10,000                         9,800
Malawi 28.00% L.R.S Oct 2007                                              6,000                         5,880
Malawi 21.00% L.R.S Mar 2008                                             35,000                        34,300

Malawi 38.00% L.R.S Aug 2008                                              6,000                         5,880
Malawi 25.00% L.R.S Jul 2009                                             17,000                        17,000
Malawi 25.00% L.R.S Aug 2009                                             10,000                        10,000
Malawi 21.00% L.R.S Oct 2010                                              6,000                         6,000
Sub-total                                                            1,484.8                       1,478,574
Malawi 25.00% L.R.S Jul 2004                                         873,883                         873,883
Malawi 10.00% L.R.S Jun 2008                                              6,890                         6,890

Malawi 15.00% L.R.S Jun 2008                                             10,462                         6,890
Sub-total                                                            891,235                         891,235

Grand total                                                        2,376,035                       2,369,809
Source: Reserve Bank of Malawi




                                                                                                            66
                                Table 13: Balance of Payments Summary (K‟mn)
                                         1997       1998        1999        2000        2001        2002        2003
Goods and Services
Merchandise
    Exports (f.o.b)                   8,827.4    16,432.7   19,795.7    22,528.2    30,791.3    31,713.1    40,041.0
    Imports (f.o.b)                   7,708.6    16,973.0   26,144.3    28,059.3    34,023.5    45,608.4    52,781.5
         Total merchandise
         (net)                        1,118.8      -540.3    -6,348.6    -5,531.1    -3,232.2   -13,895.4   -12,740.5
    Services (net)
    Non- factor services              -5,816.0   -5,469.4    -7,040.3    -9,027.3    -9,583.6   -12,611.3   -15,236.1
    Factor services                    -589.7    -1,230.4    -1,286.0    -1,437.0    -2,302.7    -3,265.8    -4,503.4
       Total services                 -6,405.7   -6,699.8    -8,326.3   -10,464.3   -11,886.3   -15,877.1   -19,739.5
       Balance on goods and
       services                       -5,286.9   -7,240.1   -14,674.9   -15,995.4   12,083.3    31,671.2    40,603.0
    Transfers
       Private transfers               -147.4      -457.6     -426.0      -528.0       717.9     1,094.3     1,391.3
       Government transfers           1,426.7     3,445.1    4,735.8     7,187.6     7,535.9     2,124.0    10,267.2
          Total Transfers             1,279.3     2,987.5    4,309.8     7,715.6     8,256.8     3,218.3     11,658.5
Capital Movements
    Long-term capital (net)
       Government (net)               1,410.0     3,931.8    9,584.2    13,473.9     8,928.0    4,194.17     3,378.8
       Public Enterprises (net)         695.9     1,332.3    1,827.8       139.8      -236.6       669.6     1,112.4
       Private sector (net)              50.0      111.7       158.5       214.1       259.6       275.7       350.6
          Total long term capital     2,155.9     5,375.8   11,570.5    13,827.8     8,951.0    5,139.47      4,841.8
          Net short-term capital       -133.9         0.0      163.8       152.7     -4,514.5      826.4     -1,304.0
    Errors and omissions              1,700.8    -7,025.8    3,221.7     6,871.4    10,569.1    19,982.9      8,445.9
    Balance before debt relief           -29.8    5,902.6    -1,279.1    5,381.1       605.0     6,455.9     -8,837.8
    Debt relief                         197.9       63.0        58.3          0.0    -1,871.0    2,244.0      3,183.3
    Balance after debt relief           168.1    -5,839.5    -1,220.8    5,384.1     2,476.0     8,699.9     -5,654.5
    Change in Net Foreign
    Assets of the Banking
    System (increase)                  -168.1     5,839.5    1,220.8     -5,384.1    -2,476.0   -8,699.94     5,654.5
Source: National Statistical Office, Economic Planning and Development, Treasury and Reserve Bank of
Malawi.




                                                                                                                   67
                            Table 14: Domestic Exports by Main Commodity (K‟mn)
                                  1997        1998       1999       2000          2001        2002       2003
Main Commodities
      Tobacco                   5,426.6    10,308.0   12,109.1   14,585.3    18,376.2      18,810.0   20,071.4
      Tea                        673.3      1,140.7    1,734.6    2,200.0     2,564.0       2,563.0    2,500.0
      Groundnuts                      ..         ..         ..         ..            ..          ..         ..
      Cotton                     477.9       155.9      235.0      535.5          317.9      300.2       483.9
      Sugar                      467.3       849.5     1,019.5     702.6      2,500.0       2,474.0    4,635.1
      Other                     1,209.7     1,962.9    3,410.4     672.7      6,148.5       6,363.3    8,450.5
      Total                     8,603.8    13,830.1   18,073.2   18,696.1    29,906.6      30,447.5   36,140.9
Source: National Statistical Office

                                                                              1
                                  Table 15: Commodity Imports and Exports

                                  1997        1998       1999       2000          2001        2002       2003
Value (f.o.b) (K'million)
Imports 2                          12.8        17.0       22.3       28.1          34.0        45.0      58.1
Domestic exports                    8.6        15.5       22.8       21.7          29.9        29.4      35.3
Re-exports                          0.2         1.0        1.4        0.9           0.9         2.3       0.9
Total exports                       8.8        24.1       22.0       22.5          30.8        31.7      36.1
Visible trade balance             (4.0)       (0.5)        1.9      (5.5)         (3.2)       (2.6)       -22
Indices (1994=100)
Imports:
Volume                            143.3       128.3      109.9          ..            ..         ..         ..
Unit value                        192.6       336.3      512.1          ..            ..         ..         ..
Domestic exports:
Volume                            124.5       132.0      124.0          ..            ..         ..         ..
Unit value                        249.8       394.7      576.0          ..            ..         ..         ..
Terms of trade                    161.5       155.0      139.5          ..            ..         ..         ..
Source: National Statistical Office & National Economic Council
1
 Due to adjustments for balance of payments purposes, figures may not agree with corresponding figures in
Table 13




                                                                                                           68
                             Table 16: Expenditure on Gross Domestic Product (K‟mn)
                                              1998        1999        2000        2001        2002        2003
Private consumption expenditure            42,464.4    69.781.2    89.416.5   105.061.2   116,604.4   169,168.3
Government consumption expenditure          7,987.2    10,527.8    12,384.7    19,591.4    58,825.5    70,456.2
Gross fixed investment                      6,035.8     9,870.6    12,792.1    15,740.8    14,110.2    14,674.7
        Public                              4,762.6     8,025.7    10,401.2    12,798.7    11,472.9    14,269.5
        Private                             1,273.2     1,844.9     2,390.9     2,942.1     2,637.3     2,742.8
Stock building                              1,288.6     1,600.0     1,290.0     1,360.0     1,417.1     1,558.8
Gross Domestic Expenditure                 75,520.8   116,721.2   141,929.0   170,919.4   185,510.7   272,870.1
Plus:
Exports of goods and services              17,744.9    21,941.6    26,045.6    33,560.0    34,053.4    43,518.8
Less:
Imports of goods and services              20,728.6    33,898.3    37,845.7    46,375.8    47,736.8    60,365.9
Expenditure on gross domestic product      54,792.2    79,822.9   104,083.3   124,543.6   137,773.9   184,011.0
Source: Economic Planning and Development, National Statistical Office, Treasury and Reserve Bank of
Malawi

                         Table 17: Gross Domestic Product by Economic Activity (K‟mn)
                                              1998        1999        2000        2001        2002          2003
Agriculture, forestry and fishing           4,489.6    4,943.8     5,210.0     4,810.7     4,916.1        5,265.4
of which:
             Estate agriculture              969.3       951.4     1,151.1       948.6     1,069.6          906.7
             Smallholder agriculture        3,520.3    3,992.4     4,058.8     3,862.1     3,846.5        4,358.7
Manufacturing                               1,717.3    1,748.6     1,695.9     1,455.7     1,290.3        1,479.4
Utilities1                                   172.2       171.5       189.0       175.7       184.2          191.7
Building and construction                    253.3       292.5       286.0       272.6       301.1          327.8
Distribution                                2,811.0    2,759.5     2,752.0     2,781.7     2,829.0        2,893.8
Transport and communications                 546.5       572.7       548.6       537.2       551.6          635.6
Financial/professional services             1,034.3    1,031.1     1,052.2     1,017.1     1,050.4        1,143.3
Ownership of dwellings                       176.1       179.9       184.6       189.7       195.0          200.4
Private social services                      262.0       263.9       271.2       279.0       276.9          295.4
Government                                  1,360.3    1,336.8     1,206.8     1,216.3     1,219.7        1,226.5
Unallocable finance charge                   -342.0     -377.9      -387.0      -364.6      -407.6         -444.4
Gross Domestic Product at
1978 factor cost                           12,644.6   13,092.0    13,117.0    12,573.2    12,585.4       13,348.1
Plus net indirect taxes                     4,750.6    6,765.8     9,588.3    10,684.6    12,984.6       34,993.1
GDP per capita
(current market prices)                     5,591.0    7,982.3    10,305.3    11,975.4    12,997.5       13,576.8
Source: Economic Planning and Development, National Statistical Office, Treasury and Reserve Bank of
Malawi
1
 Electricity and Water




                                                                                                             69
                           Table 18: The National Composite Price Index (2000=100)
                                     Weight         1998        1999        2000      2001       2002       2003


All items                              100.0       787.7      1,140.5      100.0      122.7      140.8     154.3
Food costs                              55.5       941.2      1,346.0      100.0      117.6      136.4     143.7
Beverages and Tobacco                     2.7     1,178.3     1,734.0      100.0      131.0      136.8     165.8
Clothing and Footwear                   11.7       333.7       417.9       100.0      130.5      153.6     166.8
Housing                                   9.6      607.2       991.5       100.0      132.9      156.6     180.0
Household Operations                      8.4      751.4       981.5       100.0      129.3      144.0     174.6

Transportation                            6.5      666.1       971.5       100.0      129.7      145.9     172.1

Miscellaneous                             5.6      530.9      1,015.1      100.0      122.1      134.4     148.3
Source: National Statistical Office

                        Table 19: Gross Domestic Investment and its Financing (K‟mn)
                                                   1998        1999        2000       2001       2002       2003
A. Gross domestic investment
            1.Private                           1,273.2      1,844.9     2,390.9    2,942.1    2,637.3    2,474.4
            2.Public                            4,762.6      8,025.6    10,401.2   12,798.7   11,472.9   12,200.2
            3.Total domestic investment         7,324.4     11,469.6    14,703.3   17,100.8   14,110.2   14,674.6
B. Financing
      I. Foreign financing
             4.Net foreign capital inflows      6,395.0      5,601.2     7,281.8   10,010.8   11,369.2   10,716.0
             5.Net transfers from abroad        2,986.7      5,441.6     7,654.6    9,868.8   12,091.5   15,652.5
             6.Net financing from abroad
                (4)+(5)                         9,381.7     11,042.7    14,936.4   19,869.6   23,460.7   26,368.5
             7.Increase in net foreign
                assets of the banking
                system                          5,839.5      1,220.8    -5,384.1   -2,476.0        5.0    2,703.0
             8.Net foreign financing (6)-
                (7)                             -3,542.2    12,263.5    20,320.5    7,626.7        0.0   23,456.5
      II. Domestic financing                    3,323.8       -403.0    -4,511.3    3,841.5     642.0           -
             9.Gross national saving            3,782.2       -793.9     5,617.2   17,106.0   22,134.4          -
      III. Total financing (8)+(9)              3,542.2     12,263.5    20,320.5   21,979.1   18,167.3   33,703.8
      Domestic financing as a
      proportion of total financing
      (II)/(III)                                  106.8         -6.5       -27.6      17.5         3.5      29.8

Sources: Economic Planning and Development, National Statistical Office and Reserve Bank of Malawi.
1
 Including change in stocks




                                                                                                             70
                                     Table 20: Sundry Economic Indicators
                                  Unit        1998        1999        2000        2001        2002    2003
Agriculture
    Admarc purchases:
    Amount paid out           K‟million      487.4       722.6       147.2       144.3           ..      ..
    Tobacco                   Tonnes        6,766.0    10,438.0    10,113.0      497.9           ..      ..
    Maize                     Tonnes       53,515.0    53,642.0     8,639.0     2,069.0          ..      ..
    Groundnuts                Tonnes        4,458.0      100.0       658.0      2,079.0          ..      ..
    Seed cotton               Tonnes        6,657.0     3,969.0     6,896.0     2,945.0          ..      ..
    Total tobacco auction
    sales:
    Value                     K‟million     5,032.3     8,094.3     9,466.8    10,451.0    12,223.5      ..
    Volume                    000 kgs     134,300.0   134,386.0   158,951.0   124,500.0   137,383.0      ..
    Tea production            000 kgs      40,363.0    38,469.0    42,114.0    36,770.0    39,085.0      ..
Building:
   Value of plans passed
   in Blantyre and
   Lilongwe                   K‟million     1,066.9     1,529.7      430.1      1,064.7          ..      ..
   Value of buildings
   completed in Blantyre
   and Lilongwe               K‟million      179.9       499.4         51.3      329.1           ..      ..
   Cement sales
   („000kgs)                  Tonnes           71.8      133.7       108.6       122.4           ..      ..
Electricity:
    Units sold by ESCOM 1
    Domestic tariff           Mn.Kwh.            ..          ..          ..          ..          ..      ..
    Other                     Mn.Kwh.            ..          ..          ..          ..          ..      ..
    Total                     Mn.Kwh.        941.3      1,043.6      896.6      1,107.2        188       ..
Transport:
                               000 net
    Railway freight           ton.kms       48,144      55,048      61,328      83,656      27,701       ..
    Road transport 2          Tonnes             ..          ..          ..          ..          ..      ..
    Passengers passing
    through Lilongwe
    International Airport 3   Number       44,1874     32,2082     37,7115     309,622      2,5724       ..
Source: National Statistical Office
1
 Excluding Units exported to Mozambique
2
 Transportation of agricultural produce and materials for ADMARC
3
 Includes passengers passing through Chileka (Blantyre)




                                                                                                       71
MANAGEMENT OF RESERVE BANK OF MALAWI

Governor                                     Dr. Ellias Ngalande
Deputy Governor                              Mrs. Mary Nkosi
General Manager, Economic Services           Dr. Wilson Banda
General Manager, Operations                  Mr. Elias Kambalame
Deputy General Manager, Blantyre Branch      Mr. Neil Nyirongo
Deputy General Manager, MALSWITCH            Mr. Moza Zeleza


Director Administration, Head Office         Ms Meg Kajiyanike
Director Bank Supervision                    Mr. Wilson Milonde
Director Internal Finance, Head Office       Mr. Ricky Malamulo
Director Human Resources                     Ms Lenia Banda
Director Financial Market Operations         Mr. Tobias Chinkhwangwa
Director International Operations            Mr. Grant Kabango
Director Research and Statistics             Mr. Efford Goneka
Director Special Duties                      Mr. Sauko Chilongo
Director Information Technology              Mr. Douglas Phoya
Chief Accountant                             Mr. William Matambo
Chief Internal Auditor                       Mrs. Maureen Ngwira-Chirwa
Legal Counsel                                Mr. Samuel Malitoni
Chief Protective Services, Acting            Major Godfrey Guwa

Director Administration, Blantyre Branch     Mr. Peter Rashid
Director Internal Finance, Blantyre Branch   Mr. Fanuel Kumdana

Director Operations, MALSWITCH               Mr. Grey Nkungula




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