The International Monetary Fund (IMF) is optimistic that the country’s programme under the fund will be on track by December.
In September, the IMF declared its US$150 million programme with Malawi off-track following the government’s failure to meet agreed targets with the fund.
The fund will hold a review meeting with Malawi in December.
IMF resident representative Geoffrey Oestreicher said there is a strong possibility that the review meeting in December will be in favour of the country.
“Certainly, there is a strong possibility that the review meeting will go in favour of the country. We had discussions with the government and they have shown their commitment to meeting our targets.
“There are very well known targets that as far as our programme is concerned have to be met. These involve certain limits on domestic borrowing which given a constant revenue would apply a certain level of expenditure and this fiscal contraction is necessary in order to bring down the rate of inflation in the economy which will bring down interest rates and which will spur economic activity going forward,” he said adding that, this has to be backed up by appropriate tight fiscal policy.
Oestreicher said the government is obviously in a tight situation, ever since the cashgate crisis which ripped a lot of money out of the budget.
“It has been a painful process to adjust to the reduced circumstances.
The fiscal out turn for 2014/15 was succeeded by substantial margin, but every indication we have, is that government is implementing the necessary expenditure cuts to meet programme targets for the December meeting.
“This will be painful, but it is much less painful than allowing the current situation of high inflation to high interest rates leading to reduced economic growth to continue,” said Oestreicher.
On the Reserve Bank of Malawi (RBM) policy rate hike, Oestreicher backed the central banks decision.
He said the policy rate hike is appropriate given the need for squeezing the inflation out of the system.
“What will be important is that, the central banks liquidity operations in the intra bank market are conducted in such a way so that the rest of the interest rates in the economy follow the policy rateand are maintained in positive territory by which interest rates are above the rate of inflation,” he said.
Oestreicher also said if the government’s action is strong enough the possibility of the country re-gaining budgetary support is definitely still out there.“What is key is transparency and in that regard the macroeconomic stabilisation measures and also the
public financial reform measures will feature very prominently,”he said.