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Malawi needs budget support, IMF says

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By Chimwemwe Mangazi

The International Monetary Fund (IMF) has said Malawi still requires direct budget support to contain the fiscal pressure the country has been facing recently.

In 2013, Malawi’s traditional development partiners suspended direct budget support in the aftermath of Cashgate and have, instead, been channelling resources towards development programmes and through some international non-governmental organisations.

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Then, the donors’ support was covering about 30 percent of Other Recurrent Transactions in the national budget.

The absence of the direct budget support has seen budget deficit continually yawning, estimated at K718.3 billion in the nine-month 2021-22 National Budget, representing 7.0 percent of the rebased gross domestic product.

To keep the budget afloat, the Treasury has been in an awkward position, looking up to potential domestic and foreign creditors—a thing that has been pushing the public debt to K5.5 trillion as at June 2021.

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But speaking in an interview on Wednesday, IMF Country Manager Farayi Gwenhamo maintained that Malawi needed direct budget support.

She was commenting on recommendations made by the Bretton Woods institution’s directors at the conclusion of Articles IV consultations for a possible new Extended Credit Facility (ECF) programme with the country.

“There is a need for upfront actions to be taken to address debt sustainability and this will include authorities’ discussion with creditors, especially when it comes to non-concessional external debt.

“As part and parcel of this ECF programme to help resolve Balance of Payment problems the country is facing, it will be important for international community support to be secured through direct budget support,” she said.

She reiterated the need for a strong commitment from local authorities on an adjustment programme that would help restore stability on the macro side.

However, Malawi’s traditional development partners were yet to recommit support towards the budget directly.

Asked whether they would provide budget support to Malawi given the circumstances for instance, United States Embassy Public Affairs Officer Namita Biggins said: “The United States Government does not provide direct budgetary support to the Government of Malawi.

“As the country’s largest bilateral partner, the United States works in collaboration with the Malawian government, private sector and civil society to advance a more self-reliant, gender-equitable, and democratically accountable Malawi.”

At conclusion of Articles IV consultations with the country last week, the IMF recommended that the Malawi Government institutes a special audit into the 2018 “misreported” foreign exchange reserves figures, among other things.

The IMF directors also called for further efforts to strengthen public sector governance and institutions to safeguard scarce resources, strengthen policy effectiveness and improve transparency.

“We see it as important to have a programme in place to help support Malawi’s economy so as discussions continue in the coming year, we will definitely be supporting the authorities to make progress in making adjustments to restore macroeconomic stability, address debt sustainability, secure foreign direct budget support and conclude the misreporting case,” Gwenhamo said.

An IMF Country Report No. 21/269 published on Monday indicates that fiscal deficits have resulted in unsustainable debt and budget deficits have remained high, reflecting limited adjustment in spending and low domestic revenue mobilisation.

It says rising domestic financing since 2018, as well as borrowing from regional development banks (RDBs) on a non-concessional basis, has significantly increased Malawi’s public debt, which stood at 55 percent of GDP in 2020 of which 10 percent of GDP was non-concessional external debt.

“Current account deficits have contributed to dwindling gross international reserves. The Reserve Bank of Malawi’s foreign exchange intervention in recent years has sought to maintain a broadly stable nominal exchange rate with short-term currency swaps with RDBs.

“The current account deficits fluctuated around 12 to 15 percent of GDP since 2015 as imports remained strong while tobacco exports stagnated. Gross international reserves declined to $406 million (about 1.5 months of next year’s imports) at end-October 2021,” the report reads.

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