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Hunger crisis puts Malawi-IMF programme off-balance

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The negative impacts of the prevailing hunger crisis on the country’s macroeconomic development indicators have forced International Monetary Fund (IMF) to push the Extended Credit Facility (ECF) arrangement deadline from the initially agreed December this year to mid-2017.

A team from the IMF under the leadership of the Chief of Malawi Mission, Oral Williams, visited the country from September 14 to 28 to conduct discussions on the ninth review under the arrangement but the discussions will have to continue in the weeks ahead.

The further discussions on the review, more especially during IMF annual meetings from October 7 to 9 in Washington, will include on how to address the country’s challenges and strengthen the authorities’ response to the humanitarian crisis.

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The ECF provides financial assistance to countries with huge economic challenges and protracted balance of payments problems.

The ECF supports countries’ economic programmes aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth and may also help catalyse additional foreign aid.

According to IMF review mission to Malawi, the poor harvest and humanitarian crisis adversely impacted programme performance at the end of June.

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Briefing the media in Lilongwe yesterday, Williams said domestic financing of government and net domestic assets of Reserve Bank of Malawi exceeded their ceilings, in part due to revenue shortfalls, while international reserves of the central bank were lower than targeted, reflecting lower-than expected tobacco export revenues.

He said the mission made good progress with the authorities on establishing new macroeconomic targets for December 2016 to safeguard macroeconomic policy implementation in the face of rising risks from humanitarian crisis and the extension is to allow Malawi time to demonstrate the achievement of the targets.

“Net domestic financing of the government was missed marginally. With regard to public financial management reforms, while some further progress has been made toward reconciling government bank accounts, these efforts need to be sustained in order to restore trust and confidence in the budget,” Williams said.

He said expenditures and commitments need to be kept within available funding to avoid the emergence of new payment arrears and increased recourse to domestic financing, which would undermine the fight against inflation.

“Maize subsidies, should they rise, would need to be carefully targeted to the most vulnerable segments of the population and managed in cost-effective way that does not strain public finances further and worsen public debt, which has now risen from 40 percent of GDP [Gross Domestic Products] in 2012 to 58 percent of GDP in 2016,” he said.

Williams, however, said the commitment to the flexible exchange rate regime and automatic fuel pricing mechanisms have helped the country to respond to external shocks.

Minister of Finance, Economic Planning and Development, Goodall Gondwe, said the government is doing all it can to ensure that it implements programmes that will not compound the financial challenges further.

“With the food shortages that need finances, we don’t know exactly how much we are likely to spend on buying maize to address the deficit. We do not know whether we will end up with more borrowing or we will not borrow at all.

“As I said on Monday, we have lost a lot of resources through suspended budgetary support and our own revenues are not enough for the challenges that we are facing. But we are trying to be prudent in the way we are using the little resources that we are getting,” Gondwe said.

He said while looking at the short term measures in addressing the economic challenges, the government and all other stakeholders will have to think a little deeper on how to deal away with the political connotations that are affecting the long term economic solutions.

Based on the preliminary findings of the mission, a report will be prepared and subject to management approval, it will be presented to IMF’s executive board for discussion and decision.

The negative impact of El Nino-induced drought continues to weigh heavily on the economic activity placing about 6.5 million people at risk of food insecurity.

Economic growth has declined for a second consecutive year, reflecting sharp falls in agricultural production and electricity generation, and a weak growth in the credit to the private sector.

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