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Malawi escapes IMF sanction

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A review by the International Monetary Fund (IMF) Board on Wednesday confirmed that Malawi misreported on its observance of the performance criteria on the floor on Net International Reserves (NIR) of the Reserve Bank of Malawi (RBM), leading to non-complying disbursements.

In a statement released yesterday, the Bretton Woods institution said, at the time of the first and combined second and third reviews under the cancelled Extended Credit Facility arrangement, the NIR for end-June and end- December 2018 and end- June 2019 were incorrectly reported.

IMF says RBM’s gross reserve assets were overstated due to the inclusion of both pledged term deposits and assets through contracting short-term swaps despite that the Technical Memorandum of Understanding (TMU) definition of gross reserves assets explicitly excluded both.

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The IMF Board has since acknowledged the corrective measures put in place by the authorities to remedy the situation and strengthen RBM’s reserve management.

Among the corrective measures, according to IMF Board, authorities in Malawi dismissed RBM governor Dalitso Kabambe from office in July 2020, completed, in mid-June 2022, a special audit of RBM’s foreign exchange reserves for the first three reviews under the 2018 ECF arrangement and confirmed reports about non-complying disbursements.

IMF Deputy Managing Director Bo Li said, in view of the authorities’ commitment to provide timely and accurate data to the IMF in the future and the remedial actions already taken, the IMF Executive Board granted waivers for the non-observance of the performance criterion on the floor on NIR.

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“The remedial actions taken and the additional corrective measures to be undertaken are contributing to rebuilding the reserve assets of the RBM and are, therefore, appropriate to achieve the objectives under the 2018 ECF arrangement. The IMF looks forward to its continued close engagement with Malawi,” Bo said.

Speaking in Parliament Thursday, Gwengwe said the current administration had to put in place remedial measures to the misreporting, in addition to pleading with the IMF not to slap Malawi with a $58.3 million penalty— which is the amount Malawi had obtained from the IMF fraudulently during the cancelled ECF.

“The IMF believes that Malawi cheated them on $58.3 million, which we were supposed to pay back. On the basis of controls we put in place, they granted us a waiver yesterday and we are very happy about them forgiving us,” Gwengwe said.

He added that even the audit report by Ernst and Young revealed that there was cheating and that Malawi needed to pay back the money.

According to Gwengwe, since the RBM forex misrepresentation issue is already in court, it would be up to the people implicated in the matter to clear themselves in the court.

In December last year, police arrested Kabambe and former Finance Minister Joseph Mwanamvekha over the matter.

Mwanamvekha and Kabambe are being accused of having counselled some officers in the Financial Markets Department of RBM to falsify Gross Liability and Net Reserve Base returns.

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