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Never ending Extended Credit Facility discussion

As Treasury re-engages International Monetary Fund

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Farayi Gwenhamo

The government has in the past three weeks been engaging the International Monetary Fund (IMF) for a possible fresh Extended Credit Facility (ECF).

This comes close to two years after cancellation of a similar programme in June 2020. In between, similar and other meetings have been held and, at conclusion of Articles IV consultations with the country late last year, the fund gave the green light for a possible resumption of the programme.

In an interview, Minister of Finance Sosten Gwengwe said, for the past three weeks, the Treasury has been engaging IMF delegates.

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“We have made tremendous progress and discussions are so far mutual. We are still negotiating misreporting, debt restructuring and export diversification. We have been meeting every Wednesday for the past two weeks,” Gwengwe said.

In a separate interview, IMF Country Representative Farayi Gwenhamo confirmed the development.

“These meetings are sort of informal; they are not formal mission meetings but just continuous engagements. In terms of specific outcomes, it is too early to tell but what I can say overall is that the purpose of these more frequent meetings is to discuss how best to move forward in different areas.

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“All the recommendations that were made before remains intact and a new programme will come on the table only after those recommendations are met,” Gwenhamo said.

At the end of Article IV consultations in December last year, the IMF Executive Board stressed the need for determined implementation of policy adjustments to address Malawi’s macroeconomic imbalances, restore debt sustainability, rebuild external buffers, and reduce poverty and inequality to improve social outcomes.

They underscored that restoring debt sustainability requires both addressing the legacy debt burden and adopting a strong fiscal adjustment programme.

Among other things, the programme would help boost the country’s volatile Balance of Payment position. It also works as a signal to trigger budget support from other development partners.

Earlier, the Bretton Woods institution wanted Malawi to address glaring issues which include rising public debt, currently hovering at around K5.5 trillion, and the DPP administration misreporting to IMF on Gross Reserve Assets and Net International Reserves between 2018 and 2019.

In June 2020, Malawi cancelled the previous ECF programme following a change of leadership after the Tonse Alliance-led administration noted that some of the critical programme targets were missed.

Consequently, the country forfeited $70 million (about K53 billion at the time’s exchange rate) under the three-year programme.

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