IMF review faults Malawi
Malawi’s US$150 million programme with the International Monetary Fund (IMF) is in jeopardy following a recent review from the fund which has established that the Malawi government is spending beyond budget and failed to meet other programme targets up to June 2015.
The IMF has since declared the Malawi programme off-track and the country has up to December to implement corrective measures that will form the basis for the future of the programme with the IMF.
This means Malawi will not be able to immediately access about US$20 million loan disbursement from the fund which could have been due to the country had the fund been satisfied with its economic performance. The development also heavily compromises Malawi’s chances of getting back budget aid from other donors.
Minister of Finance, Goodall Gondwe, has since admitted that things are out of hand and that a team of experts at his ministry is already working on reducing the budget from K930 billion as approved by Parliament in June.
An IMF team led by Washington DC-based Malawi mission chief, Oral Williams, disclosed during the presentation of their review findings at Capital Hill in Lilongwe yesterday that government has, among other things, spent beyond target.
“Fiscal slippages equivalent to about two percent of the GDP emerged during the second half of the 2014/15 fiscal year, in part because of overspending on the wage bill and these were exacerbated by revenue and external financing shortfalls,” said Williams.
He added that corrective measures undertaken to offset the slippages were insufficient and as a consequence, the end-June 2015 programme target on domestic financing was also not met.
On the structural side, Williams said reforms in the financing sector were carried out as planned but programmed improvements in public financial management (PFM) were delayed.
The government also met targets on net foreign reserves and net domestic assets of Reserve Bank of Malawi (RBM) for end June 2015 but these were weighed down by the fiscal slippages, said Williams.
The IMF has since reached an understanding with the Malawi government on measures to bring the Extended Credit Facility-supported programme back on track.
The agreed measures include a revised fiscal framework “sufficient” to meet the end- December 2015 programme target on net domestic financing and tight monetary stance aimed at maintaining positive real interest rates- including by absorbing the remaining excess liquidity that had entered the system when the liquid reserve ratio was lowered in July.
The IMF also recommended to the government to address existing bottlenecks that are key to boosting potential growth and creating job opportunities.
These include transport infrastructure, electricity supply, the business environment, access to finance and adoption of a strong debt management strategy to ensure that public debt remains sustainable.
The team will come back in December to see how things will turn out before the findings are presented to the IMF board for their decision on the future of the programme with Malawi, according to Williams.
Commenting on the development, Gondwe said government will come up with a reduced budget which will be presented to Parliament during the mid-year budget review in January next year.
He, however, would not disclose which areas will be affected by expenditure cuts in the reduced budget.
“It’s too early to know which expenditure lines will be reduced,” said Gondwe.
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