IMF extends Malawi loan program, adds K19.7bn after 9th review

The International Monetary Fund (IMF) approved a US$ 26.9 Million (about K19.7 billion at current exchange rate) for Malawi after concluding ninth review of the Extended Credit Facility programme (ECF) , a tool for medium-term financial support,  aimed at low income member states .

The approval of the credit brings total disbursements under the ECF arrangement to the equivalent of about US$ 191.4 million (about K140 billion), and comes almost three months after the global lender declared Malawi as being on track as far as reclaiming the economy is concerned.

And it follows the foot-steps of the World Bank which last month resumed budgetary support to the country, four years after donors pulled out their support following Cashgate scandal, a financial scandal involving looting, theft and corruption that happened at Capitol Hill, the seat of government of Malawi.

In a statement issued on Wednesday evening and made available to Nyasa Times, IMF said the approved Extended Credit Facility programme was aimed at macroeconomic stability, growth, economic diversity and reduced poverty.

IMF expects Malawi’s real GDP Growth to pick up in 2017 due to better prospects for agricultural output.

However, it noted that the macroeconomic outlook remains challenging, reflecting uncertainties related to adverse weather conditions and policy slippages.

In completing the reviews, the IMF Board also approved the authorities’ request for waivers of non-observance of performance criteria related to the net domestic assets and net international reserves of the Reserve Bank of Malawi, and net domestic borrowing by the central government.

IMF Acting Chair and Deputy Managing Director, Mitsuhiro Furusawa said Malawi’s economy has been severely hit by two consecutive years of weather-related shocks, which placed an estimated 40 percent of the population at risk of food insecurity.

“Relief efforts helped stabilize maize prices and alleviate the adverse impact of the drought on the vulnerable population. Augmentation of access under the ECF arrangement and sizable contributions from development partners enabled the authorities to address the worst humanitarian crisis in its history,” said Furusawa in the statement.

He added: “Real GDP Growth is expected to pick up in 2017 due to better prospects for agricultural output, including the maize harvest. Annual inflation is also expected to remain on a downward trend. However, the macroeconomic outlook remains challenging, reflecting uncertainties related to adverse weather conditions and policy slippages.”

Furusawa proposed that a near-term policy mix should center on reducing inflation by combining tight monetary and fiscal policies, adding that expenditures should be limited to available resources and monetary policy should aim at maintaining positive short-term real money market interest rates.

“Strengthening public financial management, including through strong commitment controls, routine bank reconciliations, and regular fiscal reporting, remains critical to preventing the misappropriation of public funds and rebuilding trust and confidence in the budget process.

“Implementation of prudent fiscal policy is important to safeguard medium-term fiscal and debt sustainability. Improved revenue mobilization and expenditure efficiency will reduce aid dependency and create fiscal space for social spending in pursuit of Malawi’s sustainable development goals,” he said.

Furusawa noted that important steps have been taken to safeguard and strengthen financial sector stability, given the negative impact of weather-related shocks and the prevalence of credit concentration risks.

“To this end, the authorities are encouraged to closely monitor banks’ compliance with prudential norms, including AML/CFT, increase provisioning, and facilitate rationalization of the banking sector. Strengthening creditor rights and reducing lengthy judicial processes in recovering collateral will contribute to a reduction in non-performing loans.”

The ECF arrangement for Malawi in the total amount of SDR 104.1 million (about US$ 143.5 million) was approved on July 23, 2012.

An augmentation of access by the equivalent of SDR 34.7 million (about US$ 47.8 million or 25 percent of quota) was approved by the Board on June 20, 2016 to strengthen the country’s response to the El Niño-induced drought.

The program is aimed at the achievement and maintenance of macroeconomic stability and implementation of policies and structural reforms to spur growth diversify the economy and reduce poverty.

The IMF had suspended the program in 2015 following a scandal in which senior government officials were found to have siphoned millions of dollars from state coffers.

President Peter Mutharika’s government has been working tirelessly to convince donors resume their aid to Malawi .

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