IMF reaches staff-level agreement on Malawi’s extended credit facility
The IMF team reached a staff-level agreement with the authorities of Malawi on the completion of the first review under the Extended Credit Facility (ECF), which is subject to the approval of the IMF Executive Board.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.
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.
Performance under the program has been good. 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.
The target on the primary balance (i.e., fiscal balance that excludes interest payments) was missed due to larger-than-expected maize purchases—to ensure food security after poor maize harvests in some parts of the country—and increases in spending to hold elections.
Two structural benchmarks were met on time and most of the rest were met with a delay. This was, in part, due to capacity constraints, which are being addressed.
Looking forward, fiscal policy should focus on actions to restore budget balance to correct for last year’s spending overruns and help cope with any shortfalls in budget support. Key reform areas are to improve debt management and public financial management—including routinizing bank reconciliation, improving commitment control and cash management, and enhancing the transparency of the budget process.
The Malawi Growth and Development Strategy (MGDS) III lays out ambitious goals for infrastructure projects designed to accelerate growth and poverty reduction. It is important to ensure that their financing preserves debt sustainability.
To this end, public investment management should be strengthened—including through rigorous prioritization of projects and a strengthened project management framework. Oversight and monitoring of state-owned enterprises and other parastatals should also be enhanced.
Monetary policy remains targeted at maintaining the inflation rate in single digits by end-2018 and preserving price stability over the medium term. The RBM’s vigilance and adoption of new regulatory measures has resulted in a significant reduction of non-performing loans and increased provisioning.
The team met with Minister of Finance Goodall E. 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.
