Press Release No. 08/209

Press Release: Statement by an IMF Staff Mission to Malawi

September 16, 2008

An International Monetary Fund (IMF) mission, headed by Mr. Andrew Berg, visited Malawi during September 4-16, 2008 to conduct discussions on a new arrangement between the government of Malawi and the IMF. These discussions follow the recent successful conclusion of the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). 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 the donor community, civil society, and the private sector.

The mission issued the following statement in Lilongwe today:

"Malawi continues to demonstrate strong economic performance. Growth is estimated to have been 8.6 percent in 2007-supported by ongoing strength in the agricultural sector and growing contributions from construction, manufacturing, and services-and is projected to be 8.7 percent in 2008. This would imply that growth has averaged 8 percent since 2005. Export trends have been particularly favorable: exports have roughly doubled over the last 4 years and will receive a further boost from 2009 on as uranium production comes on stream. While inflation has been rising over recent months, this largely reflects the upward move in international oil prices. With support from moderation of oil prices, adequate domestic food supplies, and ongoing monetary restraint, inflation is expected to return to the 7 to 8 percent range.

"The mission fully supports the government's intentions to adhere to the fiscal framework underlying the 2008/09 budget recently passed by the National Assembly and to further reduce domestic public debt. Reduction in public debt, both domestic and external, since 2005 has generated savings of around 4 percent of GDP in debt service costs-releasing these funds for poverty reduction and other high priority spending activities. The mission discussed with the authorities the implications of the recent sharp increases in fertilizer prices on the fertilizer subsidy program. The IMF team agreed with the government's intention of meeting any spending increases on the fertilizer program though a combination of increased support from donors, improvements in domestic revenue performance, and spending restraint elsewhere in the budget.

"The immediate objectives of the government's new program will be to maintain macroeconomic and financial stability over the coming year, especially in view of the pressures created on the fiscal position and the balance of payments by recent commodity price shocks. This will require among other things maintaining progress in reducing domestic debt to support a steady build-up in Malawi's international reserves-which remain relatively low in comparison with most other countries in the region. Also important are ongoing structural reforms, notably to strengthen public financial management and the monetary and financial system.

"The mission has made substantial progress in its discussions with the government on program policies and objectives for the year ahead. It is expected that these discussions will continue over the next few weeks, including at the time of the annual IMF-World Bank meetings in Washington in mid-October. A new program agreement would then be subject to review and approval by the IMF's Management and Executive Board."