Press Release No. 07/232

Press Release: Statement by the IMF Mission to Malawi

October 17, 2007

The following statement was issued October 9 in Lilongwe by the International Monetary Fund (IMF) mission to Malawi.

"An IMF Mission, headed by Mr. Andrew Berg, visited Malawi during September 25 to October 9, 2007 to continue discussions on the fourth review under Malawi's Poverty Reduction and Growth Facility (PRGF) and to initiate discussions on the fifth review. The mission held extensive discussions with the Minister of Finance, the Governor of the Reserve Bank, and senior government officials. The IMF team also met with representatives from parliament, the donor community, civil society, and the business and banking sectors.

"The three-year PRGF arrangement, approved by the IMF Executive Board on August 5, 2005, provides SDR 38.2 million (around US$59million) to support Malawi's program of economic reform and development. Following the Executive Board's completion of the third review on March 14, 2007, SDR 22 million (US$34 million) has been disbursed so far. A total of SDR 11.5 million (US$18 million) would become available on completion of the fourth and fifth reviews. Over the past year, Malawi has also qualified for further debt relief from the IMF under the Multilateral Debt Relief Initiative.

"Malawi's macroeconomic performance remains strong. Helped by sound policies, a good harvest, and favorable external conditions, real GDP growth is estimated to have been 7.9 percent in 2006 and is projected to reach around 7.5 percent in 2007. Inflation has come down more quickly than expected, standing at 7.2 percent in the year to August.

"The mission found that most of the PRGF program targets have been met. The target on domestic borrowing was exceeded, mainly because of unforeseen non-discretionary spending—notably delayed HIPC debt relief from the African Development Bank, higher- than-expected domestic interest payments, and the promissory note issued to the Reserve Bank of Malawi—and a delayed disbursement of donor aid. Despite this, domestic debt fell by over 2 percent of GDP in FY2006/07, and external reserves built up more rapidly than expected.

"Improvements in Malawi's economic performance are being supported by a range of structural reforms. The mission stressed that it will be important to build on the substantial progress achieved to date in strengthening public sector financial management. It also discussed with the authorities measures to strengthen the financial sector, improve external debt management, and create a more conducive business environment.

"The mission has reached agreement, in principle, with the government on policies and associated program objectives through end-June 2008. This agreement is subject to review and approval by the IMF's Management and Executive Board, which is expected to discuss the staff report on this mission in December 2007."