DPP’s financial reporting dishonesty remains thorny issue for IMF

The decision by the former governing Democratic Progressive Party (DPP) to cheat the International Monetary Fund (IMF) on the country’s fiscal status will continue to haunt poor Malawians as the Bretton Woods institutions have withheld their nod to resume Malawi Government’s appeal to resume the Extended Credit Facility (ECF).

The Tonse Alliance government successfully defended the first round of the four-year US$350 million ECF programme during its meeting with IMF team, which was in Malawi from 25 May, 2022 to 3 June, 2022.

However, the Minister of Finance and Economic Affairs, Sosten Alfred Gwengwe, lamented that DPP lies still remain a major hurdle in the country’s efforts to convince the IMF team.

Addressing journalists in Lilongwe on Monday, Gwengwe said the misreporting crimes the former governing party committed between 2018 and 2020 remains a thorny issue that is preventing the Brentwood Institution to give a straight nod for the new facility.

This notwithstanding, Gwengwe described the discussions as fruitful.

“However, conclusion of our negotiations with the IMF for a new program is dependent on finalization of the Special Audit on foreign exchange reserves transactions and misreporting that happened at the Reserve Bank during the period from 2018 to 2020,” he added.

He said the misreporting case is taken seriously by the IMF because Malawi was giving false information to the IMF in order for the Fund to disburse balance of payment support.

Gwengwe said the danger which may come as a result of Democratic Progressive Party (DPP) led Government lies might be that Malawi might refund US$70 million.

“As we speak, Malawi may be asked to refund all resources that were disbursed during that period. The Special Audit Report at the Reserve Bank is expected any time around mid-June 2022,” said Gwengwe.

In the discussion, the Malawi Government was represented by a team from the Ministry of Finance and Economic Affairs and the Reserve Bank of Malawi and Gengwe described the sessions as serious.

“We had positive and very productive discussions on policies that this country needs to restore macroeconomic stability, attain debt sustainability and necessary structural reforms needed to support sustainable and inclusive economic growth to fast track the country’s recovery from the impacts of the Covid-19 Pandemic, the climate related shocks and spill-over effects from the war in Europe,” said Gwengwe.

Gwengwe said the IMF and government officials also discussed recent economic developments including the impact of the recent normalization of the exchange rate, the foreign exchange reserves situation and the rising inflation rate.

Gwengwe said policy discussions focused on RBM’s foreign exchange management and strategies that could help in accumulation of gross official reserves by the RBM.

“On the fiscal side, our discussions focused on the need to align budget execution with available resources to ensure that Government minimizes recourse to debt creating financing of the budget. Emphasis was on the need for the government to monitor budget commitments and also to ensure transparency through production of periodic budget execution reports,” he said.

According to the minister, the briefing with the IMF was designed in such a way that the first leg will largely focus on structuring the program parameters, including the macroeconomic framework for the next four years.

He said apart from correcting the DPP misreporting and lies, another prerequisite for conclusion of the negotiations is for Malawi to come up with a strategy to bring about debt sustainability.

“As we all know, Malawi’s debt was classified as unsustainable mainly because of some non-concessional and therefore expensive loans that were contracted by RBM in 2018. As per the standing principles and guidelines of the IMF no country can be on an IMF program with unsustainable debt,” said the minister.

Gwengwe said to correct the current debt burden Malawi Government has recruited a debt advisor called Global Sovereign Advisory (GSA).

“The advisor was appointed on the 13th May 2022 through a tender process organized and funded by the European Union. The GSA team has since been working with the Malawi Government,” he said.

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