US government is worried about Malawi’s failure to deliver on commitments necessary to unlock second tranche of IMF funding and keep the country on the path of economic recovery
The United States Government has said Malawi may not meet the commitments necessary to receive a second tranche of the International Monetary Fund (IMF) Extended Credit Facility (ECF) in the coming months.
The US has noted that low revenue collection, ballooning expenditures, and delayed full implementation of the Integrated Financial Management and Information System (Ifmis) have put at risk Malawi staying on track with the IMF.
US Department of Treasury Deputy Assistant Secretary for Africa and the Middle East Eric Meyer told reporters in Lilongwe at the end of his four-day visit to Malawi that he has expressed deep concern that the development will impact all Malawians, and particularly Malawi’s most vulnerable citizens.
During the visit, Meyer had meetings with Vice President Michael Usi, Minister of Justice Titus Mvalo, Minister of Local Government Richard Chimwendo Banda, Reserve Bank of Malawi Governor Wilson Banda, Presidential Economic Advisor Chancellor Kaferapanjira as well as officials from the Ministry of Finance, IMF and World Bank.
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The high ranking US official noted that there have been delays by Malawian authorities in reaching an agreement on necessary debt restructuring with some of Malawi’s international creditors.
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This, according to Meyer, has been further complicated by deals that Malawi is pursuing with some investors that could undermine Malawi’s agreements with the IMF and bilateral creditors.
“This is a critical juncture for Malawi to achieve macroeconomic stability and advance on the path to meet its Vision 2063 goals.
“Urgent leadership and action are needed at all levels of the government to ensure Malawi stays on course with the ECF, implements the reforms it has committed to in order to stabilize its economy, and builds the foundation for economic growth and the long-term benefit of all its citizens,” Meyer said.
Since the IMF concluded its first review of the $175 million four-year ECF Programme on May 23, there has been deafening silence on the future of the programme.
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Meyer could not be drawn to comment as to whether Malawi’s ECF programme is still on track or not.
“I’m going to let the IMF speak for how it views the program. They’re the judges of this. They are currently in a process, as we understand it, of engaging with the Government of Malawi and working to get to a successful review.
“Our objective is to see that review completed successfully, and we want to make sure that Malawi is doing everything it can to get there,” he said.
US Chargé d’Affaires, Amy Diaz said the US government is the largest bilateral partner to Malawi and is going to spend about $450 million this year. However, it does not want to just do humanitarian support, she said.
“We’re strategic investors, and what we want to see on return of our investment is better educated Malawians, healthier Malawians, and better governance.
“And our point in sharing this now with Malawians is everyone needs to be working towards the same goal, and the goal is to build the economy. And there are hard choices that are going to have to be made, but we all need to do this together if we’re going to see the growth we need to see here.
“When I travel across Malawi, young people ask me about jobs, and we’re not going to be able to create more jobs without reducing expenditures, raising revenue and controlling bad procurements. And so this is what we are urging the Malawian Government to do, and we’re reminding them that we are here. We’re here to support and we’re going to help in every way we can thank you in terms of investments,” Diaz said.
Both Finance Minister Simplex Chithyola Banda said government remains optimistic that it will remain on track in implementation of the ECF programme.
According to Chithyola Banda, some of the conditions require Parliament interventions while others require change of approaches. He said Parliament will be meeting starting next week to look at some of the issues.
On Ifmis integration the minister said most Ministries, Departments and Agencies have integrated and that those remaining will be integrated soon.
On ballooning expenditure, the minister said some of these are because as government has to meet social obligations like procurement of fuel, medical supplies and many others
“Some of the investments they are talking about are not liabilities for they are potential investments that are helping this country generate forex through value addition and increased exports
“Malawi remains optimistic to implementing the programme and we believe that in the next two weeks most of the conditions will be met,” Chithyola Banda said.
Commenting on the observation by the US government, Scotland based economist Velli Nyirongo said a loss of ECF could have severe economic repercussions.
“Firstly, access to external financing would be significantly curtailed. This would limit the government’s ability to implement essential development programs and invest in critical sectors.
“Secondly, financial pressure would intensify. Without IMF support, Malawi may face higher interest rates and difficulty accessing international capital markets. This could force the government to borrow more domestically, crowding out private sector borrowing and hindering general economic growth,” Nyirongo said.
He added that the vulnerable populations would be disproportionately affected through reduced spending on safety nets and potential tax increases on businesses could lead to higher prices for goods and services.
“Given the current trajectory, it is imperative for the government to enhance financial prudence. This involves reducing unnecessary expenditure, minimizing economic leakages, and improving public financial management practices,” he said.
The IMF Board approved Malawi’s ECF programme on November 15 last year.
