The International Monetary Fund (IMF) has completed its assessment of Malawi’s performance on its Extended Credit Facility (ECF), giving a positive rating that the southern African nation’s economy is growing and progressing to the right direction.
IMF team reached a staff-level agreement with the authorities of Malawi on the completion of the first review under the Extended Credit Facility
Speaking to the media in Lilongwe, the IMF Mission Chief for Malawi, Pritha Mitra said they reached a staff-level agreement with the authorities of Malawi on the completion of the first review under the ECF, a lending arrangement that provides sustained programme engagement over the medium to long-term in case of protracted balance of payment problems, which is subject to the approval of the IMF Executive Board in Washington.
Mitra said Malawi’s moderate economy is on track and is likely to grow up to four per cent in 2019 followed by a rise to 6-7 per cent in medium term.
“Malawi’s economy continues to grow while inflation remains on a declining trend. Moderate economic growth is likely to strengthen to about 4 percent in 2019, followed by a rise to 6-7 percent over the medium term,” she said.
The IMF official said economic growth will be backed by improved electricity generation, better irrigation infrastructure and cropping techniques, greater access to finance, and an improved business climate.
“Inflation is expected to reach 9.5 percent at end-2018 before gradually converging to around 5 percent over the medium term,” she said.
IMF said performance under the ECF program has been “good.”
She said the most quantitative performance criteria (QPC) for end-June were met, with the criteria on international reserves and the Reserve Bank of Malawi’s holdings of government securities significantly over performing.
Malawi’s growth and development strategy (MGDS) III lays out ambitious goals for infrastructure projects designed to accelerate growth and poverty reduction and therefore Mitra said it was important to ensure that the finance preserves debt sustainability.
Mitra told reporters that while the country is facing challenges including power outages and high level internal debt, the government is implementing appropriate fiscal policies.
She said a number of set targets have been met by end of June this year which include an improvement in international reserves and the Reserve Bank of Malawi’s holding of government securities.
The IMF team met with Minister of Finance, Economic Planning and Development Goodall Gondwe, Governor of the Reserve Bank of Malawi (RBM) Dalitso Kabambe, other senior government and RBM officials, a broad range of national stakeholders outside government, as well as representatives from Malawi’s development partners.
Gondwe described the IMF positive review as having the potential to boost donor confidence.
“They have given us an advice on what we should do and we will do that. We will do better next time they come,” said Gondwe.
Gondwe said Malawi is doing better than most of the African countries in terms of economy but said government will try to improve the economy to a better percentage, hence much more needs to be done.
He also said there is a possibility that the budget might be reduced whereby some things such as allowances and travels will be cut off so that there should be a match between the available resources Malawi has and the expenditure on the budget.
“The cut will be probably on some of the projects which were not a high priority,” Gondwe said.
President Peter Mutharika is on record saying that his government took painful steps to stabilize the economy and the currency, the kwacha, and brought inflation down from a peak of 24 percent to single digit and reduced interest rates from 25 per cent to 16 per cent.
Mutharika said when he took over power in 2014, he i nherited a deficit that was almost equal to the annual national budget and Malawu was going bankrupt.
“I found GDP Growth Rate at 2.4 per cent when I started leading Malawi four years ago. Now we expect growth at 4 per cent in our 2018/2019 financial year. And we expect this growth to rise to 6 percent in 2019,” he said.
Incessed by revelations of mismanagement of public funds at Capital Hill, widely known as Cashgate in 2013, Malawi’s key donors—who contributed about 40 percent to the recurrent budget—withdrew their direct budgetary support worth $150 million, leaving behind a huge fiscal gap.
Instead, the donors, who contributed 40 percent to the country’s recurrent budget and at least 85 percent to the development budget, opted for off-budget support which they channelled through international non-governmental organisations.