Press Release No. 08/60

Press Release: Statement by an IMF Staff Mission to Malawi

March 24, 2008

An International Monetary Fund (IMF) mission, headed by Mr. Andrew Berg, visited Malawi during March 10-20 to conduct discussions on the sixth and final review under Malawi's Poverty Reduction and Growth Facility (PRGF) and on a new three-year arrangement under the 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, villagers, and the business and banking sectors.

The mission issued the following statement in Lilongwe on March 20, 2008:

"Malawi's macroeconomic performance remains strong. Helped by sound policies, including better management of public spending; another good harvest; high aid inflows; and high tobacco prices, real GDP growth is estimated to have been almost 8 percent in 2007 and is projected to stay above 7 percent in 2008. The good harvest also helped reduce the 12-month inflation rate from 15 percent in June 2006 to 8 percent in February 2008, though higher food and fuel prices are currently putting some upward pressures on inflation.

"The mission found that most of the PRGF program targets for end-December 2007 were met. The target on domestic borrowing was exceeded, however, mainly because of higher-than-expected domestically-financed development expenditures and delayed fertilizer grants. Despite this, domestic debt was brought down as a percent of GDP in 2007 and external reserves accumulated as targeted.

"Overall, the PRGF-supported program that began in 2005 achieved most of its main objectives: public debt, interest rates, and inflation are down, and growth has taken off. Important improvements were made in public financial management, and financial sector reforms have also moved ahead.

"The mission discussed with the authorities the main outlines of a new three-year program that could again be supported by a PRGF arrangement. The main goals would be to cement macroeconomic stability, reduce vulnerabilities, and continue to set the foundations for sustained growth and poverty reduction. The mission and the authorities agreed that it will be important to further strengthen public financial and economic management and increase foreign exchange reserves to buttress Malawi's ability to withstand negative shocks that could otherwise derail growth and increase poverty. It also discussed with the authorities measures to strengthen monetary policy formulation, improve the interbank market as well as the foreign exchange and securities markets, and create a better business environment.

"The mission has reached substantial agreement with the government on program objectives and policies for the remainder of the fiscal year, and, more broadly, has made excellent progress in discussions with the authorities on the policies and objectives that could be supported by a new three-year PRGF arrangement. A new agreement would be subject to review and approval by the IMF's Management and Executive Board. The Board is expected to discuss the staff report on this mission in June 2008."