IMF nods to Malawi’s Extended Credit Facility

LILONGWE-(MaraviPost)-Malawi on Monday passed the International Monetary Fund (IMF) test as the fund’s executive board approved a new Extended Credit Facility (ECF) worth about K82.3 billion ($112.3 million) to be disbursed over a three-year period.

An official in the IMF Communications Department in Washington DC confirmed the approval of Malawi’s new ECF, a lending arrangement that provides sustained programme engagement over the medium to long-term in case of protracted balance of payment problems.

Reacting to the news, Minister of Finance, Economic Planning and Development Goodall Gondwe last night described the development as having the potential to boost donor confidence and unlock budgetary support.

He said: “We [Malawi] are one of the few countries in the southern African region which has received the [IMF] nod. Among other things, the programme has been looking at government borrowing and management of foreign reserves, areas where we have done well.

“We know we are entering a difficult time when tax collection by Malawi Revenue Authority [MRA] has not been as expected. But the nod in itself is a boost to the donor confidence and we hope it opens more doors.”

Development partners withdrew their direct budgetary support to Malawi in October 2013, citing concerns over poor public finance management in the wake of revelations of Cashgate, the plunder of public resources at Capital Hill through inflated invoices, dubious payments and payments for goods or services not rendered.

Instead, the donors, who contributed 40 percent to the country’s recurrent budget and at least 85 percent to the development budget, opted for off-budget support which they channeled through international non-governmental organisations.

The new IMF programme seeks to achieve and maintain macroeconomic stability and implementation of policies and structural reforms to spur growth, diversify the economy and reduce poverty.

Among other things, Gondwe said under the new ECF, the IMF has pointed out the need for reforms in the State produce trader the Agricultural Development and Marketing Corporation (Admarc) and ways on how government markets its maize. He said government will seriously look into the issue.

However, it remains to be seen how Lilongwe will sustain the programme, especially in terms of containing government borrowing with the impending 2019 Tripartite Elections.

Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe said while the new programme stands to boost donor confidence, there is need for the country to graduate, saying “we cannot continue relying on programmes such as these to grow”.

He said: “Indeed, government and policymakers need to revisit how they market their maize as it doesn’t really explain how the previous maize it bought will be marketed to date.

“And, at the same time, Admarc had a bailout of about K45 billion, meaning it was failing to service its debtors. This calls for reforms and we have been talking about this as Ecama.”

In an earlier interview, IMF resident representative Jack Ree told Business News that with this programme, Malawi will not only be able to manage its debt sustainable but also lock in a new trend of high growth and low inflation with strong macroeconomic policies.

The IMF recently trimmed Malawi’s gross domestic product growth forecast for 2018 to four percent against government’s forecast of 4.5 percent.

Malawi’s last ECF programme valued at US$156.2 million expired in June 2017. The facility was approved in 2012 during the leadership of former president Joyce Banda and was meant to cushion Lilongwe from economic shocks such as dry spells and floods.

Recently, the World Bank cast doubt on providing budgetary support to Malawi during the 2018/19 financial plan, which according to Secretary to the Treasury Ben Botolo, would be pegged at less than K1 trillion from K1.3 trillion the previous year.

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