International Monetary Fund (IMF) mission team is in the country—three months after the last visit—for policy negotiations over the possible Extended Credit Facility (ECF) proramme with Malawi. The two-week negotiations borders on policy alignment for Malawi to qualify for an ECF programme. But what should the government bring on the table? William Kumwembe engages Economics Association of Malawi President Bertha Chikadza on this and other questions.
Firstly, what is your advice to the government as local authorities’ engage with the IMF team on ECF negotiations?
Our advice is that Malawi should approach the discussions not simply as a negotiation for IMF financing, but as an opportunity to negotiate a credible three to four-year macroeconomic recovery programme that Malawi can actually implement. This is especially important because the previous ECF, approved in 2023, automatically terminated in May 2025 without completing a review. The IMF’s June 2026 mission confirmed that discussions on a new ECF had begun and that the programme is expected to build around Malawi’s National Economic Recovery Plan (NERP). Specifically, Malawi should negotiate a programme that itself owns, and not simply an IMF programme. Thus, government should go on the table with a clearly articulated Malawi reform package, including its own quantitative targets, sequencing and social priorities to demonstrate that macroeconomic stabilisation is necessary for Malawi irrespective of the IMF.
Why do you think does the country desperately require an ECF programme?
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As a country we want inflation to fall, the fiscal deficit must become sustainable, debt must be stabilised, reserves rebuilt and the forex market normalised. This matters because the previous programme experience suggests that ambitious commitments without sufficient domestic ownership and implementation capacity are unlikely to survive. The government should therefore resist agreeing to a large number of structural benchmarks merely to secure staff-level agreement. A smaller set of measurable and implementable reforms that are aligned with the National Economic Recovery Plan and Malawi 2063, would be preferable. Second, we should put fiscal consolidation at the centre but negotiate its composition carefully. The IMF’s recent assessment identified fiscal policy as one of Malawi’s central macroeconomic problems. The 2024-25 Financial Year, fiscal deficit was around 10.1 percent of GDP, while public debt had reached approximately 88 percent of GDP at end-2024 and the interest bill was approaching 7 percent of GDP. Government should accept the principle of fiscal adjustment but negotiate strongly over how that adjustment must be achieved. Consolidation should not fall disproportionately on development expenditure and vulnerable households. The emphasis should be on reducing exemptions, improving tax compliance, controlling wasteful expenditure, strengthening procurement, rationalising poorly performing public projects and SOEs, and reducing the cost of domestic borrowing. Spending on health, education, agriculture, social protection and high-return infrastructure should be protected. The IMF itself has advocated rebalancing expenditure towards human capital, infrastructure and social protection. Third, Malawi should not negotiate the exchange rate in isolation. This could be the most difficult part of the negotiations. The IMF has been explicit that it considers Malawi’s official exchange rate overvalued and wants movement towards a unified, market-clearing exchange rate. Its 2025 analysis estimated that the real exchange rate had appreciated by more than 26 percent following the November 2023 devaluation and that the official-parallel premium had at one stage exceeded 150 percent. Government should recognise the distortions created by multiple effective exchange rates but negotiate sequencing r a t h e r than another isolated devaluation. Malawi’s experience demonstrates that changing the nominal exchange rate without correcting fiscal deficits, money creation, reserve shortages and weak export supply can simply produce inflation with a real appreciation, another forex shortage and again devaluation, with no tangible change on the economy. Also, the government borrowing at high interest rates creates a damaging nexus which also crowds out private-sector credit. The new ECF should therefore contain an explicit domestic debt management strategy, not merely ceilings on borrowing.
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What about on social-protection; what should the programme look like?
The government should negotiate a credible social-protection floor and insist that adjustment has a clearly defined social floor. Exchange-rate reform, fuel-price adjustments, tax reforms and tighter fiscal policy can impose substantial short-run costs on households. The programme should include protected minimum expenditure for social cash transfers, health, education, food security and targeted support for the most vulnerable households. This is compatible with the IMF’s current position in its Article IV which explicitly says that exchange-rate reform should be carefully sequenced and accompanied by social safety nets to mitigate short-run household impacts. We should push for sufficient financing and not adjustment without financing because a programme can fail if Malawi undertakes painful adjustment without receiving sufficient foreign-exchange financing to stabilise expectations and rebuild reserves. Government should therefore establish the financing envelope early in negotiations. The discussion should encompass not only the size of the ECF itself but also what the programme can catalyse from the World Bank, African Development Bank, bilateral partners and other concessional sources. The objective should be to create enough external financing to rebuild reserves, ease forex shortages and reduce dependence on expensive domestic borrowing. As a country, we should put growth and foreign-exchange generation inside the ECF.
What lessons should the government draw from past failed programmes?
Above all, we must learn from why the previous ECF failed. The November 2023 ECF was terminated automatically in May 2025 because no programme review had been completed within the permitted 18-month period. Before signing another programme, both sides should therefore conduct a candid diagnostic of what prevented implementation last time? Which conditionalities were unrealistic? Which failures reflected domestic policy choices? Which reflected external shocks? Was financing sufficient? Were programme assumptions realistic? Was there adequate political ownership? The answers should directly influence the design of the new programme. Malawi should therefore be firm on programme design but credible on reform. It should not argue against fiscal discipline, debt sustainability, lower inflation or FX reform as these are necessary for Malawi regardless of the IMF. Instead, it should negotiate the pace, sequencing, financing and distribution of adjustment.
