Local economic think-tank the Economics Association of Malawi (Ecama) has said completion of Extended Credit Facility (ECF) of the International Monetary Fund (ECF) has been slower than expected due to policy setbacks and delays in implementing planned reforms.
This comes as slow progress in implementing the necessary policy actions on a roadmap to complete programme review worries the IMF.
IMF Resident Representative Nelnan Koumtingue last week said ECF arrangements will automatically terminate before scheduled terms if no programme review has been completed over an 18-month period.
According to the proposed schedule of disbursement for the 2023-27 ECF, the second trench of the ECF was available on July 20, 2024. A necessary condition for its disbursement is the observance of performance criteria for March 31, 2024, and completion of first review.
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But in an interview, Ecama President Bertha Chikadza said as long as the government is able to meet the agreed prior actions, then the review is possible ‘and completion can also be possible.’
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“Both parties remain committed to the programme’s objectives, with ongoing debt restructuring negotiations taking place, which could reduce debt to sustainable levels and improve fiscal stability.
“These continued efforts are being made to address the necessary policy actions and continue with the program. It is a cautious situation, but with sustained efforts and cooperation, there is hope for a positive outcome,” Chikadza said.
But in a separate interview, economist Velli Nyirongo said Malawi’s current economic landscape presents significant challenges to successfully conclude the ECF review and sustain the programme.
He said that while the commencement of the first review mission in May 2024 and continued discussions during the IMF Annual Meetings in October demonstrate a commitment to progress, delays in finalising the review reflect underlying difficulties in implementing agreed policy actions.
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“Structural weaknesses, including fiscal imbalances, high inflation, and foreign exchange shortages, complicate the government’s ability to meet the IMF’s rigorous conditions.
“To sustain the programme, Malawi must not only accelerate the review process but also demonstrate credible reform implementation to build confidence with the IMF,” Nyirongo said.
Another economist, Marvin Banda said some of the changes proposed in the ECF cannot be implemented in a cavalier manner such as reducing the wage bill and widening the tax base.
“Debt restructuring is absolutely pertinent however most of the debt the nation has accrued does not qualify for debt restructuring due to the commercial nature of the institutions that hold these debts,” Banda said.
On November 15 2023, the Board of Executive Directors of the International Monetary Fund (IMF) approved a $175 million four-year Extended Credit Facility (ECF) programme for Malawi.
The ECF arrangement aimed at supporting the authorities’ commitment to restore macroeconomic stability, build a foundation for inclusive and sustainable growth, including strengthening resilience to climate-related shocks, and addressing weaknesses in governance and institutions.
The arrangement was also expected to catalyse grant financing and capital inflows including foreign direct investment and trade credit.
