IMF Executive Board Completes Second Review of Malawi's Three-Year PRGF Arrangement and Approves US$7.3 Million Disbursement

Press Release No. 06/186
August 31, 2006

The Executive Board of the International Monetary Fund (IMF) completed the second review of Malawi's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review, enables the release of an amount equivalent to SDR 4.9 million (about US$7.3 million), bringing total disbursements under the arrangement to SDR 15.3 million (about US$22.7 million).

The Executive Board approved the three-year arrangement on August 5, 2005 (see Press Release No. 05/188), for a total amount of SDR 38.2 million (about US$56.8 million) to support the government's economic program for 2005-2007.

In commenting on the Executive Board's discussion on Malawi, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

"Malawi's economy has performed well under the PRGF-supported program even in the face of a severe food crisis. Increased public spending was required to avert a humanitarian catastrophe, but overall fiscal performance was satisfactory. Implementation of structural measures, however, remains uneven.

"Monetary policy has been restrained, and this has helped to reduce inflation. The implementation of a more flexible exchange rate policy has helped to clear arrears on import payments. It will be important to sustain this policy going forward to prevent a return to arrears on import payments and to protect Malawi's relatively low level of international reserve cover.

"The program objectives for 2006/07 are realistic, and the program's emphasis on structural reforms in public financial management and in the financial sector is appropriate. The authorities' continued commitment to fiscal discipline and reducing the domestic debt burden will be critical for long-term fiscal sustainability. Looking ahead, it will be important to step up efforts to strengthen expenditure management to ensure that resources freed up by debt relief are used effectively, and to move forward with structural reforms in public financial management and in the financial sector.

"The realization of higher growth rates to reduce poverty over the medium term is an urgent priority. The authorities will also need to maintain prudent monetary policy, and remain vigilant in containing inflationary pressures. Further progress is needed to strengthen governance, improve transparency, and tackle corruption decisively, including by ensuring the independence of the institutions of governance. Continued implementation of strong policies will be critical to shield the economy from domestic and external shocks and improve Malawi's medium- and long-term prospects," Mr. Kato said.



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