Statement by the IMF Mission to Malawi

Press Release No. 06/59
March 21, 2006

The following statement was made today in Lilongwe by Mr. Thomas Baunsgaard, Resident Representative of the International Monetary Fund (IMF) in Malawi.

"An IMF mission, headed by Mr. Calvin McDonald, visited Malawi during March 7-21, 2006, to initiate the second review under Malawi's Poverty Reduction and Growth Facility (PRGF) program. The mission held discussions with the Minister of Finance, the Governor of the Reserve Bank, and other senior government officials, and met with representatives from parliament, the private sector, NGOs, and the donor community.

"The three-year PRGF arrangement, approved by the Executive Board of the IMF on August 5, 2005, provides SDR38.17 million (about US$55 million) to support the implementation of Malawi's economic reform program. Following the completion by the IMF Executive Board of the first review in February, a total of US$14 million has been disbursed under the PRGF arrangement (see Press Release No. 06/38).

"In assessing performance under the PRGF program, the mission found that all quantitative targets through end-December 2005 were met. There has been progress in implementing structural reforms, although at a lower pace than anticipated. Hence, most structural targets were only met with a delay.

"The mission also reviewed the outlook for fiscal and monetary policies for the remainder of 2005/06. The government's scaling up of food security operations to meet the increasing humanitarian needs, at a time when logistical constraints have pushed up costs, is commendable. However, this will put pressure on the budget and foreign reserves. Sufficient flexibility in exchange rate policy, with additional donor support, is needed to reduce the adverse economic impact. Besides food security operations, close adherence to the budget approved by parliament is essential to sustain the recent improvement in fiscal policies and prudent monetary and exchange rate policies are required to respond to external shocks. Continued improvements in payroll management and pension reform will be critical going forward to ensure fiscal sustainability.

"Preliminary indications suggest this year's harvest will be much improved. This will have a positive impact on economic prospects. The authorities should take advantage of this encouraging development to accelerate the implementation of structural reforms, including in public financial management."



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