IMF fingers Admarc loan

Tom Sangala February 15, 2018

539 2 minutes read

The International Monetary Fund (IMF) has pointed out key challenges the 2017/18 budget is experiencing, stressing the need to find solutions.

The IMF has cited revenue shortfalls and expenditure over-runs as some of the challenges affecting the budget.

At a press conference in Lilongwe yesterday, Mission Chief to Malawi, Pritha Mitra, specifically cited a bailout of maize purchase loans by the Agricultural Development and Markerting Corporation (Admarc) as one of the issues which exerted pressure on the budget.

According to Minister of Finance, Goodall Gondwe, K45 billion was used to bailout Admarc.

The IMF team was briefing the media on the just-ended Article IV Consultations and Negotiations on the next Extended Credit Facility (ECF) Programme.

“While the authorities regained control over the budget during 2016/17 financial year, this proved challenging during 2017/18 financial year. Revenue shortfall and expenditure overruns, including the bailout of maize purchase loans by a parastatal, exerted significant pressures on the budget,” Mitra said.

She, however, highlighted what should be done to deal with the challenges.

“The authorities will deploy strong remedial measures to address the widening of the budget deficit in the current fiscal year and shift to a slightly positive primary balance in the next fiscal year. It is committed to irrevocably closing out the arrears clearance programme. The government will continue enhancing transparency in the budget process, strengthening the medium-term budgetary framework and cash management and routinising bank reconciliation,” Pritha said.

The IMF team was in the country since January 31, to discuss with the government a programme supported by ECF.

While in the country, the IMF team had meetings with Gondwe, Reserve Bank of Malawi Governor Dalitso Kabambe, senior government officials and other stakeholders.

Gondwe said the Admarc debt was made after the Malawi Vulnerability Assessment Committee (Mvac) made a forecast that there would be an acute food shortage in the country. However, he said it was later discovered that the estimates, which indicated that 6.5 million people would face food shortage, were not correct.

“There was enough food within the country and, together with the free food that the donors gave us, there was no need for a number of people to buy maize from Admarc and therefore Admarc did not have resources to repay the commercial banks and the interest rates were accumulating. We had to come up with budget resources to pay off the loans that we, as a matter of legal requirement, had to guarantee,” Gondwe said.

He added: “And so, for the first time, the government is bailing out Admarc and it is probably the first time we are bailing out a statutory corporation. What it means is that the expenditure that we set ourselves in the budget would have been exceeded by an amount of about K45 billion.”

Gondwe has, however, said government has put in place measures so that pressure on the budget is eased. He said, on development budget, the the government has decided to focus on selected projects.

“We have also looked at the recurrent budget. We have agreed to take K30 billion or so from various votes and we have told the ministries that they may not use that money. We have told them how they should resist that by particularly reducing travel expenditure,” he said.

In its statement, the IMF team stated that Malawi’s economic growth in 2018 will be in the range of three to five per cent. The team says this will be followed by a rise of between six and seven per cent in the medium term.

It is expected that the staff-level agreement and 2018 Article IV could be considered in April this year by the IMF Executive Board.