The Treasury has expressed optimism over a possible deal with the International Monetary Fund (IMF) on its Extended Credit Facility (ECF) programme following success in the first review under the fund’s 12-month Staff-Monitored Programme (SMP) for the country.
In November last year, the government entered into an agreement with the IMF.
Outgoing IMF Resident Representative Farayi Gwenhamo Tuesday said the first review of Malawi’s performance has been approved by the IMF management.
“The PMB first review has been approved by IMF management and it will be discussed by the IMF executive board on July 26. Please note that it is the first review of Malawi’s Staff Monitored Programme with Executive Board involvement,” Gwenhamo said.
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According to Secretary to the Treasury Macdonald Mafuta Mwale, Malawi’s performance was satisfactory, according to review meetings.
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He said there were a number of targets including accumulation of gross official reserves by the Reserve Bank of Malawi (RBM), public finance management reforms on the Integrated Financial Management Information System (Ifmis), especially on implementing the budget through the Ifmis as well as having budget implementation and financial reports from the system which have been achieved.
He, however, indicated that the government’s revenue and deficit targets were not met, mainly because of the expenditure pressure due to persisting economic shocks.
“We have made progress. The IMF has gone with positive news that we are progressing well and, possibly, as earlier announced, in September the board of the IMF will look at Malawi with an ECF,” he said.
This should be good news to Malawi as a satisfactory RCF performance would mean effectively utilising the financial assistance provided by the IMF and making progress in achieving the set objectives which are crucial to ensuring stability and good governance in Malawi.
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This would work as a greenlight on an ECF programme.
It would further point towards enhanced monitoring and adopting fiscal and monetary policies aimed at restoring macroeconomic stability, improving fiscal discipline, promoting economic growth and enhancing debt sustainability.
The IMF is also interested in effective debt management by the government.
This is crucial for ensuring debt sustainability and reducing the risk of debt distress.
Malawi would be expected to demonstrate progress in implementing sound debt management practices, including debt monitoring, transparency, and prudent borrowing unlike the current situation where the country’s debt to GDP ratio has surpassed 70 percent.
The SMP agreement saw the Bretton Woods institution disbursing $88.3 million to Malawi under the food shock window of the Rapid Credit Facility.
The SMP would help local authorities establish a track record of policy implementation, possibly paving the way for an ECF programme.
It also meant periodic reviews of Malawi’s performance in implementing the programme in line with given targets.
A review of the programme in May 2023 uncovered that the country’s performance was mixed, mainly because of late implementation of macroeconomic adjustment in relation to the fiscal year.
A report published by the IMF indicates that it was difficult to reverse course on government spending and, in turn, money growth and foreign exchange reserve accumulation.
“The authorities are committed to taking the necessary steps to deliver on the agreed programme targets and objectives, including through strong corrective actions.
“Meanwhile, the authorities continue to work closely with debt advisors to achieve tangible and expedited progress on their debt restructuring process in line with their published strategy that underpinned the PMB request,” the report reads.
