Statement at the Conclusion of an IMF Mission to Malawi
LILONGWE, Malawi, June 26, 2013/African Press Organization (APO)/ -- A team from the International Monetary Fund (IMF) led by Tsidi Tsikata visited Lilongwe and Blantyre during June 11-25, 2013, to conduct discussions for the third review of Malawi's Extended Credit Facility (ECF) arrangement.1 The mission met Her Excellency President Joyce Banda, Minister of Finance Ken Lipenga, Minister of Economic Planning and Development Ralph Jooma, Minister of Industry and Trade Sosten Gwengwe, Reserve Bank of Malawi (RBM) Governor Charles Chuka, Chief Secretary Hawa Ndilowe (Office of the President and Cabinet), Secretary to the Treasury Randson Mwadiwa, other senior government and RBM officials, members of parliament, as well as representatives of civil society organizations, financial institutions, private sector enterprises, trade unions, and Malawi's international development partners. The mission expresses its gratitude for the constructive spirit in which discussions with the authorities and all stakeholders were held.
At the end of the mission, Mr. Tsikata issued the following statement:
“A number of indicators suggest that macroeconomic policy reforms have begun to bear fruit: increased availability of foreign exchange, the recent appreciation of the Kwacha, declining inflation, and rising capacity utilization in the manufacturing sector.
“Performance under the ECF-supported program has been broadly satisfactory. Nearly all the quantitative targets for end-March 2013 were met. In particular, after adjusting for shortfalls in the disbursement of aid flows, the targets on net international reserves, government net domestic borrowing, and the net domestic assets of the RBM were met. There was progress in the implementation of structural benchmarks, albeit at a slower pace than programmed.
“Policy discussions focused on risks to the economic outlook and measures to mitigate these risks. In view of Malawi's past record of loose fiscal policies in election years, the mission highlighted the need for fiscal discipline to consolidate emerging gains from the ongoing policy reforms. In particular, it urged the authorities to keep government spending within available resources, and recommended: wage restraint; the identification of lower priority expenditures that can be cut or postponed in the event of funding gaps; better enforcement of announced expenditure control measures; and adherence to regulations governing the procurement of goods and services using purchase orders generated through the Integrated Financial Management Information System.
“The mission welcomed the RBM's recent purchases of foreign exchange from the domestic market to boost official international reserves. At the same time, it urged the RBM to be more proactive in tightening monetary policy to rein in inflation pressures. In order to safeguard financial stability, the mission advised the RBM to strengthen its oversight of the banking system, especially with respect to banks that continue to have difficulty meeting prudential requirements.
“The mission commended the authorities on efforts underway to reduce the cost of doing business in Malawi, including the passage of a number of laws and regulatory and administrative reforms. It encouraged the authorities to step up efforts to develop the Malawi Investment and Trade Center into an effective “One-Stop Shop” for investors, and to continue seeking solutions to address key supply-side bottlenecks in transportation, energy, water and communications infrastructure, so as to enhance Malawi's external competitiveness and help foster sustained, diversified and more inclusive growth.
“The mission reached understandings with the authorities on major policy issues. Discussions will continue over the coming weeks on a few outstanding matters related to government budget execution, financial sector reforms, and external borrowing. Once the discussions are concluded, the mission would recommend to the IMF Executive Board the completion of the third review under the ECF arrangement. Completion of the review will enable Malawi to receive a disbursement of SDR 13 million (about US$20 million) from the IMF.”
1 The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund's main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.