IMF concludes staff-level agreement with Malawi on the second review of US$174.00 ECF arrangement

The staff delegation from the International Monetary Fund (IMF) has reported that it has reached a staff-level agreement with Malawian authorities on the second (and last) review of the Staff Monitored Program with Executive Board Involvement (PMB), and macroeconomic and financial policies and reforms to be supported by a new 48-month financing arrangement under the Extended Credit Facility (ECF) of about US$174.00 million.

A statement from the staff delegation — led by Mika Saito that held discussions with Malawian from August 29 to September 20 via hybrid and in-person meetings in Lilongwe — says the agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances.

Consideration by the IMF Executive Board is scheduled for mid-November 2023.

The discussions included a program of economic policies and reforms to be supported by a new arrangement under the ECF and in the statement, Saito: “Access under the arrangement could be up to SDR131.86 million (about US$174.00 million, representing 95% of Malawi’s IMF quota) over a period of four years.

“Malawi is recovering from a series of shocks, including an outbreak of cholera and Cyclone Freddy. Real GDP growth is projected to increase to 1.6% in 2023, with shortages of foreign exchange still weighing on economic activity.

“Inflation is expected to average 30.3% in 2023 and to decline to around 7% in the medium-term.”

The statement further says Malawi authorities “stepped up efforts to meet fiscal targets under the PMB, adjusting expenditure to offset a shortfall in revenue, and containing government borrowing to slow money growth”.

“The Reserve Bank of Malawi (RBM) tightened the monetary policy to contain inflationary pressures and resumed foreign exchange auctions. Rebuilding foreign reserves of the RBM has been slow as access to trade credit remains limited since the beginning of the year.

“The authorities continue to pursue good faith negotiations with commercial and official bilateral creditors and are in arrears on commercial debt while these discussions continue.

“The prospective ECF-supported program will aim at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, addressing weaknesses in governance and institutions, and strengthening resilience to climate-related shocks.”

On fiscal policy, Saito says Malawi will aim “at achieving a debt-stabilizing primary balance in the medium-term through a package of expenditure adjustment and revenue mobilization measures”.

“The authorities are committed to applying fiscal discipline, containing domestic borrowing, and improving public financial management. Monetary policy will remain anchored on containing money growth.

“It will aim to tame inflation by ensuring positive real interest rates. The banking system remains stable though exposure to government securities needs to be closely monitored.

“External sector policies will focus on rebuilding official international reserves and facilitating a market-determined exchange rate and the Malawi authorities are committed to ramp up their efforts to improve data quality and timely submission of the data to the IMF staff.”

She further reports that her mission received warm hospitality and constructive discussions, that included meetings with President Lazarus Chakwera, Minister of Finance & Economic Affairs, Sosten Gwengwe, RBM Governor, Dr. Wilson T. Banda and other senior government officials.

Sharing is caring!