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Cost of delayed IMF programme

Over $300 million forgone

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As it appears a foregone conclusion that Malawi would have to wait a little longer while toiling to have a new Extended Credit Facility (ECF) arrangement with the International Monitory Fund (IMF) in place, the cost of its absence cannot be overemphasised.

Monday’s position by the fund’s mission team—led by African Affairs Director Abebe Aemro Selassie—that the country would not get a fresh programme until Capital Hill irons out myriad public finance management outstanding issues was not surprising.

But while talks are in session, the cost of the IMF’s stance on the local economy remains glaring.

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Possible impact

Having a programme with the fund in place signals a green light for support from other international development partners.

And our findings, which were corroborated by Reserve Bank of Malawi (RBM) Governor Wilson Banda, show that having no ECF programme in place for the past year meant Malawi was failing to access $300 million (approximately K247 billion at the current rate) for Development Policy Operation of the World Bank.

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The money is above Malawi’s monthly forex requirement of $250 million.

If channelled into the economy, the resources could boost the forex reserves position, which in the past nine months has remained volatile—houvering around two months worth of imports— and consequentially leading to continued depreciation of the Kwacha.

Also, sources at the Treasury say an estimated $90 million might have been foregone as part of trenches disbursed if the ECF programme were in place.

When a decision was arrived at to cancel the programme in September last year, Malawi forfeited $70 million (about K53 billion at the time’s exchange rate).

Records show that total access under the ECF was about $145 million and the funds included the initial resource envelope (about $112.3 million) approved in April 2018 plus the $40 million under Augmentation of Access approved in November 2019.

Local economic think-tank, the Economics Association of Malawi (Ecama) said, all factors considered, the situation would frustrate strides towards economic recovery.

In an interview Tuesday, Ecama Executive Director Frank Chikuta said the ECF programme remained essential in signalling confidence to Malawi’s other development partners.

“When a country is going to ask for an ECF arrangement, it means that there are some macroeconomic challenges within the country, so you would want to get some assistance from the fund and other key development partners to re-establish the m a croeconomic stability in the country,” Chikuta said.

His views auger well with a position by University of Malawi’s Economics Professor Ben Kalua, who yesterday said the country desperately needed the money to address chronic economic woes.

He said while in the long-run Malawi needed to put in place measures that would help it address demand and supply imbalances on the foreign exchange market, support from the international community remained an interim remedy.

“We are failing to make strategic decisions regarding our debt requirements and other very serious gaps such as external trade gaps and the issue of savings and investments gaps in the country. As such, there is a need for national strategic planning going forward. Not because IMF tells us to, but it is something we should do on our own,” Kalua said.

The ECF programme, albeit with several conditions, is rated as ideal by experts for its “signalling effect” of triggering budget support in the eyes of development partners and a boost in the Balance of Payment position.

What went wrong?

In June 2020, the government announced cancellation of the ECF programme for what it then called a shift in policy direction after the Tonse Alliance administration was ushered into power during the fresh presidential election.

But it emerged that there were serious misreporting on some of the programme’s targets and conditions during its implementation by the former governing Democratic Progressive Party.

They include gross reserve assets and net international reserves between 2018 and 2019, a thing which the IMF mission team said was being taken seriously before a new programme was in place.

Other matters arising include the intent by the fund to see Malawi addressing souring public debt situation, which is currently hovering at around K4.7 trillion.

“These couple of issues need to be addressed and, as soon as they are addressed, we should be in a position to move forward with the programme,” Sellassie said.

Way forward

Finance Minister Felix Mlusu said not all was lost as discussions for a new programme were underway.

Addressing journalists on Monday, Mlusu said the government was committed to ensuring that it enters into a new programme with the fund.

He said Capital Hill was already working on legacy issues raised by the IMF to ensure that they are addressed with speed.

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