For more information, see Malawi and the IMF

Malawi--Enhanced Structural Adjustment Facility
Policy Framework Paper, 1998/99-2000/01

Policy Matrix and Tables

Malawi: Policy Matrix, October 1998-September 2001

Sector

Objectives and Policies

Strategies and Measures

Timing

Technical Assistance
External Sector

   Exchange rate
   policy


  Efficiently allocate of foreign exchange for a competitive tradable goods sector

  Maintain competitive, unified, market-based exchange rate

  Ongoing

   
   Trade policy

  Reduce/eliminate barriers to trade and rationalize tariff structure

  Reduce maximum tariff rate to 25 percent

  June 1999

   
        Maintain the lowered levels of tariffs, as approved in the Customs and Excise (Tariffs), Amendment No. 2, Order of 1998, (1) on selected raw materials at 5 percent, (2) on selected intermediate goods at 5 percent, (3) on capital goods at 5 percent, (4) on final goods at most at 30 percent

  Ongoing

   

Public Finance

   Budget policy

  Promote macroeconomic stability

  Reduce primary fiscal deficit to a near balance and maintain a modest deficit in the subsequent years

  1999-2001

   
   Revenue policy

  Raise the revenue-GDP ratio and rationalize the tax structure to ensure an efficient tax system

  Broaden the tax base and cut tax exemptions

  1998-2000

   
      Strengthen tax administration

  1999-2000

  IMF/
World Bank


      Establish the Malawi Revenue Authority (MRA)

  March 1999

   
        Provide adequate funding for the MRA and revenue departments

  Ongoing

   
        Collect tax arrears

  Ongoing

   
   Expenditure
   policy


  Improve expenditure monitoring and control using the medium-term expenditure framework (MTEF) system

  Extend the MTEF/budget process to all ministries, and establish cost coefficients for individual expenditure subitems

  1998-99

  World Bank
1998/99


        Set indicative three-year ceilings, by sector, in the 1998/99-2000/01 MTEF

  Oct. 1998

  1998/99
World Bank


        Fully integrate the MTEF process and the budget through preparation of rolling three-year budget estimates

  1999-2000

  1999/2000
World Bank


        Include all previously off-budget items (including items financed by the European union (EU) and other donors) in the government budget

  Ongoing

   
Civil Service Reform

  Establish a lean, more qualified, and better motivated civil service, with greater focus on priority areas by rationalizing government ministries, departments, and agencies

  Maintain a temporary freeze on hiring, except for essential functions, until decisions are taken in the light of the ongoing functional reviews of major ministries

  Ongoing

   
        Complete detailed functional reviews of all ministries following the completed strategic reviews of functions and take decisions on recommendations arising out of the reviews

  July 1999

  1998/99
World Bank


        Rationalize, outsource, privatize, or eliminate 30 government functions identified in the functional reviews of five major ministries

  March 31, 1999

  World Bank

        Complete the rationalization process (outsourcing, privatization, elimination, and redeployment) based on recommendations arising from the completed strategic reviews

  Dec. 1999

  1998/99
World Bank


        Agree on medium-term wage policy consistent with a decompressed pay structure and a leaner civil service

  1999-2000

  World Bank/
IMF



Agriculture

   Land policy

  Reduce rural poverty

  Implement reforms to improve the efficiency of land utilization and develop a land market

  Ongoing

  World Bank

        Submit the final report of the Presidential Commission of Inquiry on Land Policy Reform

  March 1999

   
        Using the commission's report, prepare a sessional paper outlining the government's proposals on land policy

  Dec. 1999

   
   Output markets

  Establish conditions for an appropriate price structure that would allow an efficient crop pattern

  Develop maize markets and increase the supply of maize by strengthening incentives for private storage of, and trade in, maize

  Ongoing

   

        Administer the maize price band:
(1) ensure that the formula for the upper band incorporates the current import parity price; (2) update the maize price band periodically; (3) publicize the lower and the upper levels of the band; (4) inform the public that the prices are intervention prices, not defended prices; (5) ensure that all government-funded interventions, including those of Agricultural Development and Marketing Corporation, sell at no less a price than the upper band.


  Ongoing

   
        Prepare program of commercialization and privatization for ADMARC

  April 1999

   
        Implement the program of privatization and commercialization of ADMARC

  1999-2003

   
        Replace the Strategic Grain Reserve (SGR) with an autonomous National Food Reserve Agency (NFRA) subject to rule-based interventions

  1999-2000

   
   Rural finance

  Deepen rural markets and improve access to sustainable financial services

  Safeguard the autonomy of the Malawi Rural Finance Company (MRFC) and enforce recovery of MRFC loans

  Ongoing

   

Private Sector Development

   Increase
   efficiency and
   broaden the
   ownership base
   by privatizing
   public enterprises


  Continue the privatization process

  Bring to the point of sale agreed list of government shares in 15-20 firms

  Oct. 1998-
March 1999


  World Bank

        Privatize all assets of Malawi Development Corporation (MDC) and ADMARC Holdings

  1998-2003

   
        Appoint consultants to review the effects of the privatization program hitherto upon economic efficiency and income distribution

  April 1999

   
    Review and revise the prudential regulatory frame-work for all financial institutions in order to ensure a uniform regulatory and taxation framework, and bring all financial institutions under Reserve Bank of Malawi supervision

  Appoint consultants to review the framework and make recommendations

  Dec. 1998

   
      Receive the consultants' reports

  March 1999

  World Bank
      Issue guidelines for the privatization of the Commercial Bank of Malawi and the National Bank of Malawi

  March 1999

   
   Labor markets

  Facilitate the employment of skilled expatriate workers

  Issue, gazette, and publicize a new Employment Permits (EP) policy that (1) designates "key posts," which are issued automatically to applicant firms, depending on their size, and (2) permits permanent residents to work without being subject to EP review

  Done

   
        Appoint independent assessors of the implementation of the EP policy

  Jan. 1999

   
        Receive the report from the assessors

  March 1999

   

Infrastructure

   Transport:
   enhance efficient
   resource
   allocation and
   effective
   competition in
   the transport    sector


  Regarding roads, improve the efficiency of resource allocation, increase resources for road maintenance, and increase private sector participation

  Operationalize the National Road Authority (NRA) and the Road Fund

  1998-99

  EU/World Bank

        Ensure agreement of NRA and government on annual expenditure targets and a commensurate strategy for raising road user charges

  1998-99

   
        Strengthen the management of the sector by restructuring the Roads Department and creating roads agencies

  1998-2001

  World Bank/EU

        Commercialize, or part privatize, the PVHO, (the program supporting emergent contractors)

  1998-2001

  World Bank

        Improve road safety and reduce the cost of road accidents by implementing a new strategy with defined performance targets

  June 1999-2001

  World Bank

    Improve operational and financial performance of Malawi Railways and Lake Services

  Complete the concessioning of Malawi Railways

  March 1999

   
        Select the privatization option for Malawi Lake Services

  Done

   
        Establish an appropriate regulatory framework for Malawi Railways and Lake Services

  June 1999

   
        Complete the privatization of Malawi Lake Services

  June 1999

   
   Telecommuni-
   cations


  Improve the efficiency of telecommunications by encouraging private participation in infrastructure

  Submit legislation to parliament creating a separate telecommunications regulatory body and splitting posts and telecommunications into separate entities

  March 1999

  World Bank/ Danish International Development Agency

        Award a second cellular license to a private operator

  March 1999

   
        License both cellular operators in a way that will ensure fair competition between them in the marketplace, and make the terms of the license public

  March 1999

  World Bank/ DANIDA

        Appoint appropriately qualified advisors to secure a strategic partner for Malawi Telecommunications

  March 1999

  World Bank

        Offer a share in the telecommunications firm to a strategic partner

  June 2000

  World Bank

   Energy

  Restructure ESCOM and encourage private sector participation in the energy sector

  Pass an Electricity Act establishing an independent regulatory body, and incorporate Electricity Supply Corporation of Malawi (ESCOM) under the Companies Act

  Done

  1998/99
World Bank


        Incorporate ESCOM under the Companies Act

  Done

   
        Approve a plan for the debt restructuring of ESCOM

  Done

   
        Implement the organizational restructuring of ESCOM

  Dec. 2000

  World Bank


Social Sectors

   Education

  Improve budgetary allocations for key services

  Maintain the budgetary allocation for nondebt recurrent budget for the Ministry of Education at 23 percent

  1998/2001

   
        Maintain the share of primary education in the Ministry of Education budget at 65 percent

  1998/2001

   
        Maintain the share of goods and services expenditure in the recurrent budget of the Ministry of Education at 25 percent

  1998/2001

   
    Improve quality of schooling

  Establish a medium-term teacher development program

  1999

  U.K. Department for International Development DFID/ Gesellschaft für Technische Zusammen-
acbeit (GTZ)/WB


        Review and revise the curriculum and establish exit points from the system

  1998-2001

  World Bank/ DANIDA

    Improve administration, planning, and efficiency of schooling provision

  Update the education investment framework of 1995, refining priorities and making targets consistent with budgetary resources

  March 1999

  World Bank/ USAID/ DFID, DANIDA

        Reform the education planning unit

  1999

   
        Review and regularly revise tuition fees in secondary education

  Dec. 1999

   
   Health

  Enhance the accessibility of cost-effective health services

  Complete the health strategy and investment Framework

  April 1999

   
        Maintain the per capita annual budgetary allocation for drugs and vaccines at US$1.25

       
        Introduce Revolving Drug Funds at clinics: 40 percent (1,120) of them to be operational by Dec. 2000

  1999-2000

   
    Improve the efficiency of resource use

  Introduce a graduated cost recovery system, starting with the specialist referral hospitals and district facilities

  Ongoing

   
        Regularly revise the fee schedule for patients in private rooms to move toward full cost recovery

  Ongoing

   
   Population

  Reduce population growth by reducing fertility rates from 6.7 to 5.0

  Introduce a comprehensive and integrated community-based distribution approach to family planning, so as to improve the contraceptive prevalence rate from 18 percent to 28 percent by Dec. 2002

  Ongoing

   
   Water

  Expand service and strengthen financial viability in water supply

  Set water tariffs such that water boards are financially viable

  Ongoing

  1998-99
World Bank


    Improve water supply management and encourage private sector participation

  Build private sector capacity to provide all goods and services for rural water supply

  Ongoing

  1998-99
World Bank


        Rehabilitate and construct new boreholes and gravity-fed water supplies for villages

  Ongoing

  1998-99
World Bank


        Rehabilitate and expand facilities for small towns

  Ongoing

  1998-99
World Bank


        Improve supply/distribution and financial management of Lilongwe and Blantyre water supply systems

  Ongoing

  1998-99
World Bank


   Gender and
   development and
   advancement of
   women


  Mainstream gender issues government policies, programs, and projects to ensure sustainable development

  Strengthen the implementation, coordination and monitoring of the National Gender Policy by the Ministry of Women, Youth, and Community Services

  Ongoing

   
        Raise the awareness of gender issues, women's legal rights, food utilization and dietary diversification, reproductive health services, and economic empowerment of women as part of poverty alleviation

  Ongoing

   
Poverty reduction
and safety nets


  Enhance Poverty Alleviation Program (PAP) through community-based initiatives

  Identify the percentage of the budget to be transferred to poverty-reducing programs on an ongoing basis and consistent with a sustainable fiscal framework

  Dec. 1998

  1998-99
World Bank


        Review objectives, target groups, main program elements, and institutional framework for the PAP, and agree on the same for a long-term public safety strategy

  June 1999

  1998-99
World Bank


    Improve poverty monitoring

  Strengthen the capacity of the poverty monitoring system to monitor the impact of policy and programs aimed at reducing poverty

  June 1999

  1998-99
World Bank


        Put monitoring and evaluation systems in place to monitor the targeting effectiveness and coverage of the public safety net interventions

  June 1999

   
Environment

  Execute national environmental policies so as to ensure efficient resource utilization

  Implement the Environmental Management Act of 1996 by, inter alia, the following:

       
        Implementing regulations guiding the use of environmental impact assessment for certain types of private and public investment;

  Ongoing

  1998-99
World Bank


        Adopting policies whereby local communities will share in revenues from comanagement of natural resources;

  Ongoing

  1998-99
World Bank


        Periodically adjusting water tariffs of the water boards to maintain economic pricing of water;

  Ongoing

  1998-99
World Bank


        Enforcing estate conservation and afforestation covenants; and

  Ongoing

  1998-99
World Bank


        Strengthening the regulatory framework for industrial pollution

  Ongoing

  1998-99
World Bank


Local Government

  Develop a legal and financial framework for local authorities

  Pass the Local Government Act (replacing the Local Government-Urban areas-Act and Local Government-District Councils-Act)

  Jan. 1999

  1998-99
World Bank


        Hold local elections in line with the revised Local Elections Bill.

  1999

   
 


Table 1. Malawi: Selected Economic and Financial Indicators, 1996-2001

1996

1997

1998

1999

2000

2001
  Prel. Prog. Prog. Proj. Proj.
 
(Annual perentage change, unless otherwise specified)
 
GDP and prices
   GDP at constant market prices 10.7 5.1 3.6 5.0 5.5 6.0
   Consumer prices (annual average) 37.7 9.1 27.4 18.1 5.9 4.5
   Consumer prices (end of period) 6.7 15.2 36.4 7.0 7.0 5.0
   GDP deflator 40.3 13.7 19.2 17.9 6.5 5.7
External sector
   Exports, f.o.b. (millions of U.S. dollars) 483 567 509 520 549 582
   Imports, c.i.f. (millions of U.S. dollars)  1/ 624 783 717 676 686 711
Money and credit  2/
   Net foreign assets 43.8 -10.7 91.1 56.4 15.9 13.8
   Net domestic assets -4.0 10.3 -61.2 -38.8 -4.3 -1.8
   Credit to the government 0.9 2.4 -64.3 -44.9 -9.2 -6.5
   Money and quasi money 39.9 -0.5 29.9 17.6 11.7 12.1
 
  (In percent of GDP, unless otherwise specified)
Central government  3/
   Revenue (excluding grants) 16.3 15.1 19.8 16.3 16.7 16.7
   Expenditure 24.0 26.8 34.6 29.2 28.7 28.2
   Domestic primary balance (commitment basis) 0.8 -4.5 -0.1 -1.2 -1.2 -1.1
   Overall balance (excluding grants, commitment basis) -7.7 -11.6 -14.8 -12.9 -12.1 -11.4
   Overall balance (including grants, commitment basis) -3.0 -8.1 -3.6 -5.8 -5.8 -5.8
 
National saving -1.9 -0.3 -1.6 2.0 3.3 4.9
   Domestic saving 0.5 2.1 2.5 6.1 7.2 8.3
      Public saving -4.1 -4.4 -2.8 -0.5 -0.3 0.0
      Private saving 4.5 6.4 5.3 6.6 7.5 8.3
Net factor income and private transfers -2.4 -2.4 -4.0 -4.1 -3.9 -3.5
 
Foreign saving  4/ 14.3 12.6 19.4 17.9 15.9 14.0
 
Gross investment 12.4 12.3 17.8 19.8 19.2 18.8
   Public 6.6 7.1 12.9 14.8 14.1 13.4
   Private 3.2 2.7 2.5 2.8 3.0 3.3
   Stock building 2.6 2.4 2.5 2.2 2.1 2.1
 
External sector  5/
   Exports, f.o.b. 21.3 22.4 30.2 33.9 33.3 32.1
   Imports, c.i.f.  1/ 27.5 31.0 42.5 44.1 41.6 39.2
External current account (including official transfers) -7.7 -9.3 -8.9 -8.8 -8.1 -6.8
External debt 95.0 90.4 140.7 166.5 162.5 154.2
Debt-service ratio  6/ 16.8 14.8 18.6 17.8 15.4 15.0
   Of which: interest payments  6/ 5.5 5.4 5.8 5.5 5.0 4.9
 
  (In millions of U.S. dollars, unless otherwise specified)
 
Gross official reserves
   End-period stock 218 155 235 286 295 306
   In months of imports of goods and nonfactor services 3.6 2.1 3.5 4.4 4.5 4.5
External debt (disbursed and outstanding, end of period) 2,156 2,283 2,374 2,552 2,680 2,798
 
Memorandum items:
   GDP (in millions of kwacha) 34,750 41,421 51,556 63,664 71,541 80,143
   Kwachas per U.S. dollar exchange rate (per. avg.) 15.3 16.4 30.6 ... ... ...
 
Sources: Malawian authorities; and Fund staff estimates and projections.
 
1/ Including drought-related maize operations in 1994-98.
2/ Change in percent of money and quasi money at the beginning of the period. For 1997, actual outcomes were revalued at program exchange rate of MK 16.2 per U.S. dollar. Thereafter, growth rates are calculated at the new program exchange rate of MK 41 per U.S. dollar.
3/ Fiscal year starting April 1 for 1996 and 1997, July 1 for 1998. Program targets for 1997 were calculated based on revised GDP.
4/ External current account, excluding official transfers.
5/ For 1997, program numbers were calculated on the basis of revised GDP.
6/ In percent of exports of goods and nonfactor services.
 


Table 2.  Malawi: External Financing Requirements, 1994-2002
(In millions of U.S. dollars)

1994

1995

1996

1997

1998

1999

2000

2001

2002
       
Projection
 
Total financing requirements -348 -341 -454 -321 -470 -441 -348 -343 -336
 
   Current account deficit 1/ -271 -177 -272 -318 -327 -274 -262 -254 -243
   Amortization (public sector) -47 -47 -44 -41 -45 -47 -52 -56 -60
   Change in international reserves -15 -91 -123 55 -73 -97 -24 -25 -25
      Gross official reserves 17 -69 -112 63 -80 -51 -9 -10 -10
      Official liabilities (- decrease) -8 -20 -4 -3 29 -31 0 0 0
      Commercial bank holdings (net) -24 -3 -6 -5 -22 -15 -15 -15 -15
   Change in arrears -9 -16 0 0 0 0 0 0 0
   IMF repayments -6 -10 -15 -17 -25 -22 -9 -7 -8
 
Sources of financing 348 341 454 321 470 441 348 343 336
 
   Official grants (net) 111 152 97 83 177 139 129 130 119
      Balance of Payments (BOP) support 59 88 73 61 96 81 73 74 70
      Project support 53 63 23 23 81 58 56 56 48
   Official loans (medium and long-term) 193 156 193 117 142 236 188 180 181
      BOP support - - 121 59 76 139 108 107 106
         Of which: World Bank 87 20 75 32 60 73 ... ... ...
      Project - - 53 58 66 97 80 73 75
   Other capital (net) 18 22 142 110 134 55 31 33 36
   IMF disbursements 26 12 22 10 17 10 0 0 0
 
Financing gap 0 0 0 0 0 0 0 0 0
 
 
Sources: Malawian authorities; and Fund staff estimates and projections.
 
1/ Excludes official grants.



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