The IMF in Malawi: Devil or Saviour?
Probably the most important news in Malawi in the last few days was the announcement by the Minister of Finance Hon. Goodall Gondwe that the IMF has declared that Malawi’s Extended Credit Facility (ECF) programme is back on track about five months after declaring the programme off-track. What this means is that after its board meets in the next few months, Malawi will receive SDR 20 (Special Drawing Rights) which is approximately US$30 million as part of the ECF that was approved on July 23, 2012.
Since then, I have heard and read different opinions. It is difficult to ascertain whether this is good news or bad news for Malawi from those opposing views. Those who believe that it is good news have even gone a step further and taken space on the public media both radio and TV to congratulate the President on this great achievement. Similarly those of a different opinion have used various media to express the fact that this is the worst piece of news of the century as it supports that idea that the country have failed to manage its economy and hence it is in intensive care unit of the IMF and that it is a sign of desperation that the nation is celebrating getting a loan.
There is also some confusion whether the IMF is a donor or a creditor? The IMF is a specialised agency under the United Nations which has its own charter and a governing structure and provides financing and policy advice to countries in economic difficulties and helps them achieve macroeconomic stability. The IMF together with its sister organisation the World Bank were conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944, hence the name Bretton Woods Institutions (WBI) that is used commonly to refer to these two institutions. The IMF is a creditor hence its prioritisation of debt servicing over anything else as such justifying the criticism that it is more concerned about serving the interests of the wealthy western nations.
The IMF also does routine economic surveillance of its member countries despite the level of economic problems and is the number one institution that multinationals, investors and donors rely on with regards to assessing the economic performance of any country.
I personally disagree with the majority of the IMF programmes and I am not its biggest fan at all. The problem with the IMF assistance is that it is never just that. This is because the conditions that surround IMF assistance programme often hurt, rather than help the people of the country that the institution claims to be aiding. For example part of the reasons that Malawi was off track last year included the fact that the country recruited 10,500 additional teachers (according to IMF this was unplanned) and the fact that the government granted a wage increases to civil servants (according to IMF this was unbudgeted). The IMF concluded that Malawi was off track because it failed to raise the targeted revenues (mainly taxes) which could entail an increase the tax burden for the majority of the Malawians in an environment of economic hardship.
Having said that I sympathise with my good friend Hon. Goodall Gondwe, he is damned if the IMF had said that the country was still off track and damned even now that the IMF has said the country is on track! This is not a choice between the Devil and the Saviour but a choice of the lesser of the two devils. This is because a country gets an IMF programme when its economy is in a crisis and it needs help! That was the situation when Malawi got into this ECF in 2012. The ECF will bring policy credibility and confidence to the market and the international community. Help stabilise the kwacha through the balance of payments support and probably forestall imported inflation. The other conditions that come with the programme should also strengthen public financial management and restore budget credibility.
Whether you agree with the ECF or not, just remember that there is still work to be done. The outlook for the 2016/17 financial year is still bedevilled by persistently high inflation and a looming food crisis due to the floods of last growing season and the erratic rainfall pattern of the current growing season. In the medium term this country needs policies that should safeguard macroeconomic stability, ensure prudence in the management of public resources, and prioritise efficient and high quality public spending in order to avoid the choice between the lesser of the two devils!
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