The International Monetary Fund has declared that Malawi’s Extended Credit Facility programme is back on track about five months after the influential monetary institution declared the programme off-track.
The latest declaration follows IMF mission’s March 9-23, 2016 visit to Malawi where a team led by Oral Williams conducted discussions on the seventh and eighth reviews under the ECF arrangement.
This means that after its board meets in the next two months or so, the IMF will be disbursing the 20 million Special Drawing Rights (SDR)—which is about US$30 million—which will further boost the forex reserves of the Reserve Bank of Malawi (RBM).
In September last year, the IMF mission’s declaration that Malawi’s ECF programme was off-track meant the bank could not disburse 20 million SDR of the 104.1 million SDR (about US$144.4 million) which was approved on July 23, 2012.
Williams said the Malawi government has demonstrated a concerted effort to put the ECF programme back on track. This is a lending arrangement that provides sustained programme engagement over the medium to long term in case of protracted balance of payments problems.
“Programme targets on net domestic financing and net domestic assets of the Reserve Bank of Malawi for end December, 2015 were met.
“However, the build-up in net international reserves fell short of the end-December programme floor owing to lower-than-expected export revenues and some smoothing of the excessive volatility in the foreign exchange market,” said Williams.
He added that on the structural side, reforms in the financial sector were carried out as planned, adding that improvements in Public Finance Management (PFM), in particular bank reconciliations, are gaining momentum “but this needs to be sustained”.
The IMF official also said real Gross Domestic Product (GDP) which fell sharply to 3 percent in 2015 is expected to be within the 3-4 percent range in 2016 depending on the improvement in weather conditions.
“Rising food prices and a sharp depreciation of the kwacha contributed to annual inflation increasing to about 25 percent at end-December 2015. Inflation has since fallen slightly to 23.4 percent in February 2016 and non-food inflation has been on a clear declining trend, suggesting that the appropriate adjustments in monetary and fiscal policies are having their intended effects,” said Williams.
He added that the mission reached understandings to ensure that recent improvements in macroeconomic policy implementation are sustained.
“Restoring macroeconomic sustainability by bringing inflation— which has been stuck above 20 percent since mid-2012–down to single digits, remains the most important policy challenge in the near term.
Minister of Finance Goodall Gondwe said government’s efforts to reduce domestic borrowing–which he said is currently below K5 billion—has contributed to the ECF programme coming back on track.
He added that government will continue implementing the PFM not because the donors want it but because it is essential in making sure Malawi’s economy is sustainable.
“The advice that we get from the IMF is very important because they provide a very valuable yardstick of how we manage our economy. Now, I have to say that we will continue doing well especially on the public finance management.
“We will continue doing well so that when they come again next time, we will still be on-track. The public finance management reforms are very important so that we can use our resources prudently,” said Gondwe.
He said the bank reconciliations have started and are going on well so that no wanton plunder of public funds–dubbed Cashgate–should be experienced again.
Meanwhile, the IMF mission has said the revised national budget which Parliament recently approved is sufficient to meet the end-June 2016 programme target on net domestic financing.
When they declared Malawi’s ECF programme off-track, the IMF mission advised government to revise downwards the national budget, arguing that the K930 billion was not sustainable and Gondwe revised the fiscal plan to K906 billion.
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