Extended Credit Facility delay worries government

Finance Minister Felix Mlusu Monday said the government is concerned about International Monetary Fund (IMF)’s delay to resume implementing the Extended Credit Facility (ECF) for Malawi.

Mlusu expressed his worry at a news conference in Lilongwe yesterday, when he gave the status of the country’ ECF discussions with the IMF.

In June 2020, Malawi cancelled the previous ECF programme following change of leadership after the Tonse Alliance-led administration noted that some of the critical programme targets were missed.

Malawi is failing to access $300 million [approximately K247 billion at the current exchange rate] for Development Policy Operation (DPO) of the World Bank because of the absence of ECF, information which was corroborated by Reserve Bank of Malawi Governor Wilson Banda.

“Discussions are underway to restart the ECF but we are a little frustrated with the IMF. It has taken us long. We have tried to explain to the IMF that we are clearing these legacy issues,” Mlusu said.

He said the discussions with IMF had taken longer than expected because, among other things, the erstwhile governing Democratic Progressive Party (DPP) administration misreported to IMF on Gross Reserve Assets and Net International Reserves for 2018 to 2019.

He said ECF was also cancelled because the country had a high debt stock, estimated at K4.76 trillion as of December 2020.

Mlusu added that IMF takes seriously misreporting, to the extent of asking for refunds which were already disbursed.

“These are legacy issues which the current government is resolving with the IMF before the proposal for the new ECF Programme is presented to the IMF Board,” he said.

The Finance Minister said, in the absence of ECF, Malawi was failing to get both financial and technical support from development partners and multilateral cooperating partners.

“ECF helps to unlock both financial and technical support from the donors. Once a country gets an IMF Extended Credit Facility, donors and cooperating partners come in with support,” he said.

Meanwhile, according to Mlusu, the government has taken some measures to convince the IMF to restart ECF.

On the huge debt stock, he said the government was restricting borrowing to concessional terms for key infrastructure projects and engaging donors for extension of grace periods on loans that are not yet effective and implementing a policy of borrowing for productive investments only.

He said, to address the issue of misreporting, the government would conduct a special audit of foreign exchange reserves of RBM.

Mlusu said the government would also maintain budget discipline by implementing the approved budget and applying sanctions to offenders.

On domestic debt, the government would continue with its programme of diversifying its debt port-folio through issuance of more long term debt instruments among others.

Malawi was implementing the ECF from April 2018 and it was expected to run until April 2021.

Through ECF, IMF provides financial assistance to countries with protracted Balance of Payment problems.

Policy priorities in the previous ECF arrangement were aimed at entrenching macroeconomic stability, preserving debt sustainability and advancing governance reforms.

Last month, IMF approved $133 million in Special Drawing Rights (SDRs) for Malawi, which is expected to bolster confidence and strengthen the resilience of the country’s economy.

SDR is an international reserve asset created by IMF to supplement its member countries’ official reserves