Press Release No. 07/294

Press Release: IMF Completes Fourth and Fifth Reviews under the PRGF Arrangement for Malawi and Approves US$18.1 Million Disbursement

December 17, 2007

The Executive Board of the International Monetary Fund (IMF) today completed the fourth and fifth reviews 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 SDR 11.45 million (about US$18.1 million), bringing total disbursements under the arrangement to SDR 33.4 million (about US$52.9 million).

In completing the review, the Executive Board waived the nonobservance of the end-December 2006 and end-June 2007 performance criterion on central government domestic borrowing, and the structural performance criterion on the implementation of centralized IMFIS mechanism for paying central government utility bills.

The three-year PRGF arrangement for Malawi was approved on August 5, 2005 (see Press Release No 05/188), for a total amount of SDR 38.2 million (about US$60.4 million) to support the government's economic program for 2005-2007. Following the Executive Board discussion on Malawi, Mr Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

"Malawi has shown commendable performance under its PRGF-supported program. Economic growth remains high and inflation has continued to decline. This should continue to support Malawi's poverty reduction and development efforts.

"The domestic debt burden has declined further, though somewhat less rapidly than expected. Fiscal policy implementation has been supported by strong revenue performance, and the recent improvement in the government's control of payroll execution has facilitated the lifting of the program's ceiling on the wage bill. However, the government's domestic borrowing targets came under pressure from unforeseen challenges, including delays in aid disbursements and unexpectedly high interest payments. It will be important to keep careful control over public spending moving forward.

"The improvement in the macroeconomic environment has permitted the monetary authorities to bring inflation down to single digits while maintaining a stable exchange rate. Inflation is expected to remain in single figures. However, monetary policy implementation came under some strain in mid-2007, and the authorities need to address the ensuing rapid monetary expansion.

"The program envisages economic growth in 2007 /08 spreading beyond the agricultural sector and remaining high. Further declines in the domestic public debt burden should continue to support robust private sector credit growth.

"The progress in stabilizing Malawi's macroeconomic environment will continue to support economic growth and poverty reduction. Sustaining progress will require greater emphasis on structural reforms. Improvements in public financial management have been substantive if somewhat slower than foreseen, and more needs to be done to translate budget resources into better service delivery. The authorities will also need to focus on strengthening financial intermediation and creating a better business environment," Mr. Kato said.