Uneven Transmission: Monetary Policy, Sectoral Asymmetries, and the Planning Gap Under Malawi 2063

This paper examines the sectoral transmission of monetary policy in Malawi and its alignment with the country’s long-term national development agenda, Malawi 2063 (MW2063). Moving beyond aggregate models, it disaggregates the effects of monetary shocks across agriculture, manufacturing, and services—the three strategic sectors identified under MW2063. Using a recursively identified Vector Autoregressive (VAR) model and annual data from 1994 to 2024, the study assesses how policy impulses transmitted through interest rate, credit, and exchange rate channels influence sectoral output. Results from impulse response functions and forecast error variance decompositions reveal a highly uneven transmission mechanism: agriculture is particularly sensitive to credit and exchange rate shocks, services respond primarily to exchange rate dynamics, while manufacturing appears largely unresponsive. These asymmetries raise concerns about the efficacy of uniform monetary policy stances in structurally diverse economies. The paper calls for a more differentiated, sector-sensitive monetary framework, aligned with Malawi’s national development planning architecture. Importantly, the realisation of this alignment demands greater institutional convergence: harmonising the Reserve Bank of Malawi’s stabilisation mandate with the developmental roles of the Ministry of Finance and Economic Affairs and the National Planning Commission.