Press Release No. 07/50

Press Release: IMF Executive Board Completes Third Review Under the Three-Year PRGF Arrangement for Malawi, Approves US$10 Million Disbursement, and Grants Waiver of Nonobservance of a Performance Criterion

March 14, 2007

The Executive Board of the International Monetary Fund (IMF) completed the third review of Malawi's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables the release of SDR 6.7 million (about US$10 million), bringing total disbursements under the arrangement to SDR 22.0 million (about US$33 million). The Board also granted Malawi's request for a waiver of nonobservance of the performance criterion on government domestic borrowing.

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$57.4 million) to support the government's economic program for 2005-2007.

After the Executive Board discussion on Malawi, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"The Malawian authorities are to be commended for the satisfactory performance of the economy under the PRGF-supported program, which is especially notable given the severe food crisis experienced during 2005/06. Increased public spending on food security helped to avert a humanitarian crisis.

"Monetary policy has been restrained and has helped to reduce inflation. Management of the exchange rate system has improved significantly. It will be important for the authorities to maintain their commitment to a flexible exchange rate policy to prevent a return to private arrears on import payments and to protect Malawi's relatively low international reserve cover.

"The program objectives for the remainder of 2006/07 are realistic. The bumper harvest should support a rebound in output growth. The authorities' continued commitment to reducing the domestic debt burden will be critical for long-term fiscal sustainability and to free resources for private sector development. The authorities will need to manage rising expectations regarding public spending following the delivery of substantial debt relief under the enhanced Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative in order to keep the fiscal position sound.

"Malawi is at an opportune juncture given its progress toward macroeconomic stabilization, the delivery of debt relief, and the launch of the Malawi Growth and Development Strategy (MGDS)—the new poverty reduction strategy. To make serious inroads in reducing poverty, Malawi must now implement an ambitious agenda of structural reforms, while staying focused on securing macroeconomic stability. The authorities have appropriately made enhancing growth and reducing the costs of doing business the focus of the MGDS. To meet its development goals, Malawi will need the continued support of the international community," Mr. Kato said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a PRSP. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.