## _cr07147 ## Source details **Canonical URL:** [_cr07147](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07147.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07147.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07147.pdf.json) --- ### Executive summary — setting and medium-term challenges - HIPC completion point attained in August 2006; Malawi finalized the Malawi Growth and Development Strategy (MGDS). - Medium-term challenges: raising growth, improving economic management capacity, and managing a possible scaling up of external aid. - Political constraint: government in a minority position in parliament could divert attention from economic reform. - Selected indicators (period averages and points as presented): - Real GDP, percent change: 1.4 | 4.4 | 5.8 - Real GDP, percapita, percent change: -0.4 | 2.9 | 2.7 - Domestic debt, percent of GDP: 13.9 | 21.9 | 8.3 - Overall fiscal balance, incl grants, percent of GDP: -7.7 | -3.2 | -1.2 - CPI index, end-of-period, percent change: 18.1 | 15.6 | 7.5 - Gross official reserves, months of imports: 2.7 | 1.4 | 2.7 ### Recent macroeconomic performance (FY2005/06 outcomes) - Real GDP growth: 5.3 percent. - Nonfood inflation: 13 percent. - Overall inflation: above 15 percent. - Domestic borrowing: 0.3 percent of GDP (0.9 percentage points higher than programmed). - Underlying surplus: 1 percent of GDP. - Overall deficit: 1 percent of GDP. - Domestic debt fell below 20 percent of GDP. - Exchange rate/external sector: - More flexible exchange rate policy instituted in January 2006; depreciation helped clear private external arrears by end-July (structural benchmark for end-June). - Tobacco export receipts for the 2006 marketing season were US$30 million less than in 2005. - External official reserves reached 1.6 months of imports. - Monetary developments: - February reduction in the LRR; mop-up incomplete; modest monetary overhang at fiscal year end; broad money stayed on target. - Lower LRR eased financial intermediation costs; treasury bill yields about 5 percentage points lower than at start of 2006. ### Policy discussions — major themes and recommendations - Overarching view: advance an ambitious structural reform agenda while retaining focus on macroeconomic stabilization; strengthen administrative capacity for implementation. - Key priorities: - Enhance growth via private sector activity and higher exports; focus on agriculture in the medium term and mining and tourism in the longer term. - Strengthen public financial management, external debt management, national statistics. - Prepare to manage a large scaling up of external private capital and aid flows by improving absorptive and implementation capacity. ### Enhancing growth — impediments and actions - Identified impediments: - Competitiveness and costs of doing business: ranked 110 worldwide and 13 in sub-Saharan Africa in World Bank’s 2006 ease of doing business report (out of 175 countries). - Burdensome licensing, tax, external trade document, and procedural requirements; weak property rights (especially land); poor flexibility of factor markets; scarce skilled labor; prohibitive dismissal costs. - Access to credit and shallow financial intermediation: commercial bank assets low, collateral constraints, weak creditor rights, no borrower information. - Specific measures recommended: - Finalize a Private Sector Development Program (target: early 2007). - Lower real lending rates where feasible, reduce LRR further when appropriate. - Strengthen regulatory and legislative frameworks, increase competition in banking, lower lending risk. - Comprehensive financial sector strategy to be finalized after the FSAP (expected mid-2007). - Kayelekera uranium mine expectations cited: - Expected to last 11 years, generating about 1,000 tons of uranium and US$90 million in export receipts annually. ### Building institutional capacity — actions underway and planned - Continue phasing-in IFMIS and a centralized payments system (initiated late 2005). - Restructuring and reform of public enterprises and utilities: privatization of telecommunications; reorganization of water boards; rehabilitation of hydro-power plants; Malawi Energy Regulatory Act forthcoming. - Agricultural measures: restructure ADMARC; finalize Land Reform Bill; donor-supported work on irrigation, storage, weather insurance, and marketing. - Public financial management focus: strengthen budget comprehensiveness, internal controls, reconciliation, audited reports; compile quarterly financial reports for major public sector enterprises (structural benchmark for end-March 2007). ### Scaling up external financing — management priorities - Need large increase in external private capital and aid flows to finance MGDS development goals. - To manage scaling up, focus on absorptive capacity, public financial management, and implementation capacity to prevent macroeconomic disruption. ### Fiscal and program assessment - Debt relief has raised public expectations; manage expectations to protect macro stabilization. - Government met most indicative targets for end-September 2006; tax revenues higher than planned. - Unanticipated development spending jeopardized end-December 2006 targets on government spending and domestic borrowing. - Staff recommends completion of the third review under the PRGF arrangement and supports a waiver for nonobservance of the performance criterion on government domestic borrowing due to essential unplanned expenditure from the food crisis. ### Risks, vulnerabilities, and medium-term outlook - Prospects: growth projected to remain above historical trend; inflation projected to fall to single figures. - Key risks: - Recurring food crises due to weather-related vulnerability. - Vulnerability to reversal of recent oil price declines. - Delays in expected external financing and rising expenditure pressures weakening expenditure control. - Policy priority: prudent accumulation of external reserves to mitigate external shocks and weather-related risks. --- ### Box 2 — Financial sector development: key findings and statistics (end-2005) - Financial depth and structure: - Commercial bank assets in 2005: 12 percent of GDP (well below SSA average). - M2 (Percent of GDP): 21.23 (Malawi) / 31.4 (SSA) - Assets (Percent of GDP): 11.82 (Malawi) / 23.8 (SSA) - Deposits (Percent of GDP): 16.22 (Malawi) / 24.3 (SSA) - Bank Credit to Private Sector (Percent of GDP): 6.5 (Malawi) / 17.0 (SSA) - Real Deposit Rate: -3.9 percent (Malawi) / -0.9 percent (SSA) - Lending-Deposit Spread: 22.2 percent (Malawi) / 12.4 percent (SSA) - Bank concentration index: 100.0 (Malawi) / 88.9 (SSA) - Fiscal and sectoral interactions: - Utilities accumulated annual losses averaging 1.5 percent of GDP (2000/01–2004/05), largely financed by government lending not fully reflected in fiscal accounts. - By end-2004/05, utilities’ debt obligations to the government reached 5 percent of GDP. - Policy recommendations: - Reduce crowding out of private credit by consolidating and reducing large domestic government borrowing. - Address negative real deposit rates and high lending-deposit spread. - Clarify boundaries between utilities’ commercial activities and government-mandated social functions; ensure transparent budget financing of social functions. - Explore private sector participation and strengthen monitoring and corporate governance of utilities. - Maintain a flexible exchange rate and competitive real exchange rate; use any real appreciation to accumulate external reserves (monetary conditions permitting) to raise external reserve coverage above 3 months of imports. - Sequence capital account liberalization cautiously; postpone further consideration until after the FSAP. - Strengthen anti–money laundering capacities; implement 2004 recommendations of the Eastern and Southern African Anti–Money Laundering Group; parliament approved anti-money laundering legislation in July 2006. --- ### Macroeconomic objectives and near-term outlook (2006/07 highlights) - Real GDP growth: - A bumper harvest will support a rebound in real GDP growth to 7 percent (projection). - Inflation: - Target increased to 8 percent because of delayed declines in urban food prices. - Inflation dropped to about 10 percent at end-December 2006. - Expected to fall below 10 percent by mid-2007 given moderation in world oil prices, strong agricultural crop, deceleration in reserve money growth, and exchange rate stability. - Monetary and credit: - By end-September 2006, commercial bank lending to the private sector had increased 28 percent year-on-year. - Reserve money growth to be reduced to offset the unanticipated monetary overhang at end-June 2006. ### Fiscal performance and projections (selected figures and implications) - IMF debt relief provided 2.6 percent of GDP (US$60 million or MK 8.4 billion). - MK3.7 billion to be transferred in 2006/07 on the former flow schedule; remainder transferred this fiscal year used to reduce domestic debt held by the RBM by 1.4 percent of GDP beyond programmed reduction. - World Bank expected additional program support of US$20 million (subject to donor projections). - Wage bill in 2006/07 increased by 0.1 percent of GDP starting in the third fiscal quarter. - Civil service pensions projected at 1.5 percent of GDP in 2006/07 (versus 1.2 percent of GDP in 2005/06); expected to stay below 2 percent of GDP in the medium term. - Domestic debt projections: - Domestic debt expected to fall to 14.8 percent of GDP, 1.7 percent lower than programmed. - Excluding repayments using funds saved through IMF debt relief, domestic debt would be 16.3 percent of GDP. - Increased spending will reduce underlying surplus to 0.6 percent of GDP (compared with 1.0 percent envisaged earlier). ### Sources and allocations of fiscal space (percent of GDP; exact figures preserved) - Sources of fiscal space (98/99-05/06 Avg. ; 06/07-09/10 Avg. ; Change): - Total: 26.54 | 41.11 | 14.6 - Domestic revenues, other receipts: 20.42 | 24.74 | 4.3 - Net foreign financing: 11.01 | 19.48 | 8.4 - Domestic interest payments: -4.8 | -3.0 | 1.8 - Allocations of fiscal space (98/99-05/06 Avg. ; 06/07-09/10 Avg. ; Change): - Total: 26.54 | 41.11 | 14.6 - Wages: 6.2 | 7.7 | 1.5 - Other current spending: 14.5 | 15.0 | 0.5 - Development: 9.4 | 17.2 | 7.8 - Domestic debt reduction: -3.6 | 1.2 | 4.8 - Memorandum: - Pro-poor spending /1: 6.0 | 11.3 | 5.3 ### Implications of reaching the HIPC completion point (Millions of U.S. dollars) - Central Government, Budget (2007/08 | 2008/09): - Debt service before relief: 114 | 113 | 113 - Debt service savings: 88 | 100 | 100 - Debt service after debt relief: 26 | 14 | 13 - Reserve Bank of Malawi (2007/08 | 2008/09): - Debt service before relief: 26 | 13 | 7 - Debt service savings: 26 | 13 | 7 - Debt service after debt relief: 0 | 0 | 0 - Memorandum: - Debt relief resources to budget: 148 | 100 | 100 - Budget debt service savings: 88 | 100 | 100 - Transfer from RBM: 600 | 0 | 0 - Flow transfers: 260 | 0 | 0 - Stock transfer: 340 | 0 | 0 ### Monetary policy, reserves, and external sector (highlights) - Net foreign assets at the RBM increased steeply because of IMF debt relief. - Gross official reserves remain low due to the food crisis and earlier FX pressures. - If exchange rate stability continues, reserves could reach about 1.7 months of imports by end of fiscal year. - Bank rate reduced from 25 percent to 20 percent in mid-November 2006; prompted declines in treasury bill rates and similar declines in commercial lending and deposit rates. --- ### Structural measures, benchmarks, and program mechanics (selected) - Business climate and investment: - Introduce a single business permit and simplified business licensing fee structure. - Establish the Malawi Investment and Trade Centre for one-stop services. - Review selected commercial laws in the current fiscal year. - Financial intermediation and legal framework: - Passage of the Land Reform Bill. - Revision of the RBM Act to give the RBM greater autonomy. - Legislation to govern microfinance sector (structural benchmark for end-June 2007). - Introduction of commercial courts. - Public sector enterprises and transparency: - Compile quarterly financial reports for major public sector enterprises and publish audited annual financial statements (structural benchmark for end-March 2007). - Public financial management and capacity: - Continue phasing-in IFMIS (structural benchmark for end-October 2006). - Centralize payment of utility bills of all central government entities (performance criterion for end-March 2007). - Compile monthly payroll execution reports (structural benchmark for end-March 2007). - Draft and issue guidelines for public sector borrowing (structural benchmark for end-June 2007); staff suggested aiming for a grant element of at least 54 percent and establishing indicative limits on annual external debt accumulation. - Rebase CPI by mid-2007 and revise national accounts and balance of payments. ### Program quantitative and continuous targets (selected, exact values preserved) - Program exchange rate: MK139 per US$1 (technical memorandum valuation; table cells also show MK123 in earlier periods). - Liquidity Reserve Requirement (percent): 20.0 - Floor on net foreign assets of the monetary authorities (PC): 33.0 (stock) with period-specific values shown in tables. - Ceiling on net domestic assets of the monetary authorities (PC): 15,520 (stock) with period cells provided. - Ceiling on central government's net domestic borrowing (PC): 53,923 (stock) with reported adjusted actuals. - Ceilings on accumulation of external payment arrears and new nonconcessional external debt: 0.0 (continuous evaluation). ### Structural performance criteria and benchmarks (selected dates) - Implement centralized IFMIS mechanism for paying central government utility bills — End-March 2007 (Performance Criterion). - Eliminate import backlog of commercial bank FX applications — End-Jun. 2006 — Implemented with a delay. - Develop and implement new travel policy — End-Sept. 2006 — Implementation imminent. - Formulate PFM action plan — End-Oct. 2006 — Implemented. - Compile quarterly financial reports for key public sector enterprises and publish audited annual statements — End-March 2007. - Compile monthly payroll execution reports — End-March 2007. - Issue external debt management guidelines — End-June 2007. - Submit microfinance legislation to Cabinet — End-June 2007. --- ### Adjustment clauses and definitions (CGDB and other ceilings; paragraphs 18–30) - CGDB (central government domestic borrowing) adjustment rules (full one-to-one adjustments): - Downward adjustment for payments for verified pre-2005 domestic arrears less than the program baseline; only payments charged against the Accountant General vote and reported by the Accountant General qualify (Paragraph 18). - Upward/downward adjustments for cumulative receipts from sale of commercial maize through ADMARC relative to program baseline (Paragraph 19). - Adjustments for changes in the U.S. dollar–denominated Health SWAp donor pool account at the RBM relative to program baseline (Paragraph 20). - Adjustments for changes in stocks in NAC accounts in the Malawi banking system relative to program baseline (Paragraph 21). - Adjustments for cumulative IMF HIPC/MDRI transfers transferred by RBM to Government relative to program baseline (measured from June 30, 2006) (Paragraph 22). - Adjustments for cumulative debt-service payments to the World Bank and the ADB relative to program baseline (measured from June 30, 2006) (Paragraph 23). - Definition of nonconcessional external debt for program purposes: grant element less than 35 percent (Decision No. 11248-(96/38)); ceilings measured cumulatively from June 30, 2005 (Paragraphs 27–30). - Exclusions from nonconcessional debt limit include Fund resources, kwacha-denominated T-bills and local registered stock holdings by nonresidents, international reserve liabilities of the RBM, restructuring/repayment issuances up to the amount used, normal import financing, and arrangements to pay judicial awards over time (Paragraph 30). ### Reporting and monitoring requirements (selected) - New data requirement: backlog of import applications for foreign exchange to include data by bank and categories (imports not yet delivered; imports delivered but within the grace period; imports delivered but outside the grace period). - Selected reporting items and frequencies: - Gross international reserves, exchange rate, FX purchases/sales — D — RBM — W2 — F E - Reserve money, OMO transactions, RBM conversion of treasury bills — D — RBM — W2 — F E - RBM balance sheet and broad money estimate — W — RBM — M7 — F E - Central government domestic borrowing — M — MOF — M30 — T30 E - Fiscal table (GFS) including revenue, expenditure, and financing — M — MOF — M30 — T30 E - Quarterly financial statements of ten major parastatals and MSB — Q — MOF — Q45 — T15 H - CPI and monthly statistical bulletin — M — NSO — M30 — T30 E - Balance of payments and quarterly statistical bulletin — Q — NSO — Q45 — T15 E --- ### Staff appraisal and recommendations - Overall assessment: - Malawi at an opportune juncture given progress toward macro stabilization, debt relief delivery, and launch of MGDS. - Macroeconomic performance in 2005/06 broadly satisfactory despite food crisis: strong real GDP growth, declines in domestic debt/GDP ratio and non-food inflation, improved exchange rate management. - Key recommendations and priorities: - Stay focused on macroeconomic stability while managing expectations from debt relief. - Contain expenditure pressures by containing funding releases in final months of 2006. - Build external reserves and maintain strict expenditure controls. - Advance structural reform agenda: lower cost of doing business, enhance access to credit, improve public service delivery, strengthen public financial management. - Absorb higher aid and private capital while maintaining macro stability; balance immediate spending pressures with need to increase low external reserve coverage. - Complete public expenditure review with World Bank and conduct timely annual performance reviews of the MGDS. - Recommendation on program review: - Based on performance through end-June 2006 and first half of 2006/07, and authorities’ commitment, staff recommends completion of the third review under the PRGF arrangement. --- ### Conclusion — program implementation and selected indicators - Authorities committed to PRGF measures; implementation broadly in line with objectives despite vulnerability to exogenous shocks. - Policy priorities: reduce poverty via macro stability, enhance revenue, streamline expenditure, reduce inflation, deepen financial markets, and absorb debt relief for pro-poor spending. - Selected key indicators (2004–06; exact figures preserved): - Real GDP at constant market prices (selected years): 5.1 (2004 Act.), 2.1 (2005 Act.), 8.5 (2006 Est.) - Nominal GDP (billions of kwacha): 207.2 (2004), 245.7 (2005), 305.1 (2006) - Consumer prices (end of period): 13.7 (2004), 16.5 (2005), 9.9 (2006) - Usable gross official reserves (millions of U.S. dollars): 119.3 (2004), 131.2 (2005), 143.4 (2006) - Months of imports: 1.1 (2004), 1.4 (2005), 1.6 (2006) - External debt (public sector, percent of GDP): 155.3 (2004), 143.0 (2005), 50.6 (2006) - NPV of debt (percent of avg. exports): 257.7 (2004), 361.0 (2005), 33.6 (2006) - Domestic debt (net, central government, percent of GDP): 22.6 (2004), 21.9 (2005), 17.4 (2006) *Source: IMF staff report and supporting material contained in document _cr07147.* ### Executive Summary ...................................................................................................... ### Executive Summary ### The Setting - HIPC completion point attained in August 2006; Malawi finalized its Malawi Growth and Development Strategy (MGDS). - Medium-term challenges identified: raising growth, improving economic management capacity, and managing a possible scaling up of external aid. - The government faces political constraints (minority position in parliament) that could divert attention from economic reform. - Malawi: Selected Indicators (as presented) - Fiscal year Period average 1999/00 - 2003/04 - 2004/05 - 2006/07 - 2010/11 - Real GDP, percent change 1.44.45.8 - Real GDP, percapita, percent change -0.42.92.7 - Domestic debt, percent of GDP13.921.98.3 - Overall fiscal balance, incl grants, percent of GDP-7.7-3.2-1.2 - CPI index, end-of-period, percent change18.115.67.5 - Gross official reserves, months of imports2.71.42.7 ### Recent Macroeconomic Performance - 2005/06 outcomes: - Real GDP growth: 5.3 percent. - Nonfood inflation: 13 percent. - Overall inflation: above 15 percent (exceeded expectations). - Domestic borrowing: 0.3 percent of GDP, 0.9 percent higher than programmed. - Underlying surplus: 1 percent of GDP (lower than expected). - Overall deficit: 1 percent of GDP (better than expected due to loan-financed project spending shortfalls). - Domestic debt fell below 20 percent of GDP. - Exchange rate and external sector: - More flexible exchange rate policy instituted in January 2006; depreciation helped clear private external arrears by end-July (structural benchmark for end-June). - Tobacco export receipts for the 2006 marketing season were US$30 million less than in 2005. - External official reserves reached 1.6 months of imports, comfortably above target. - Monetary developments: - February reduction in the LRR followed by tightened reserve money growth to reduce excess liquidity; mop-up incomplete, modest monetary overhang at fiscal year end; broad money stayed on target. - Lower LRR eased financial intermediation costs, raised deposit rates and reduced interest rate spreads. - Treasury bill yields remained about 5 percentage points lower than at the start of 2006. ### Policy Discussions — Major Themes and Recommendations - Overarching view: advance an ambitious structural reform agenda while retaining focus on macroeconomic stabilization; strengthen administrative capacity for effective implementation. A. Enhancing Growth - Government priority (MGDS): enhance growth primarily through private sector activity and higher exports; focus on agriculture in the medium term and capacity in mining and tourism in the longer term. - Kayelekera uranium mine expectations (as cited): expected to last 11 years, generating about 1,000 tons of uranium and US$90 million in export receipts annually. - Identified impediments to private sector development and recommended measures: - Competitiveness and costs of doing business - Malawi ranked 110 worldwide and 13 in sub-Saharan Africa in the World Bank’s 2006 ease of doing business report (out of 175 countries). - Key constraints: burdensome licensing, tax, external trade document, and procedural requirements; weak property rights (especially for land); poor flexibility of factor markets; high costs of starting/closing businesses; scarce skilled labor; prohibitive dismissal costs. - Access to credit and financial intermediation - Financial intermediation is shallow due to dominant informal and subsistence sectors, low income and savings, entrenched land tenure traditions limiting collateral use, weak enforcement of creditor rights, absence of borrower information. - Agreement that further fiscal consolidation is fundamental to crowding in private sector credit expansion. - Policy recommendations: lower real lending rates (as feasible within monetary framework), reduce LRR further when appropriate, strengthen regulatory and legislative frameworks, increase competition in the banking sector, lower lending risk. - A comprehensive financial sector strategy to be finalized following the Financial Sector Assessment Program (FSAP), expected in mid-2007. - Administrative actions: finalize a Private Sector Development Program (target: early 2007) following consultations with private sector and donors. B. Building Institutional Capacity - Strengthen public financial management, external debt management, and national statistics compilation. - Enhance policymaking and implementation capacity at Reserve Bank of Malawi (RBM), Ministry of Finance, and other key institutions to better absorb higher aid flows. - Steps already under way: implementation of the Integrated Financial Management Information System (IFMIS) and a centralized payments system in late 2005. - Restructuring and reform of public enterprises and utilities: privatization of telecommunications, reorganization of water boards, rehabilitation of hydro-power plants, forthcoming Malawi Energy Regulatory Act to establish a regulatory authority. - Agricultural sector measures: restructuring ADMARC, finalization of the Land Reform Bill, work with donors on irrigation, storage, weather insurance, and marketing; concerns remain about government interventions in grain and fertilizer markets and the targeting of fertilizer schemes. C. Scaling Up External Financing - Malawi would need a large increase in external private capital and aid flows to finance development goals. - To manage scaling up, focus on absorptive capacity, public financial management, and implementation capacity to prevent macroeconomic disruption. ### Fiscal and Program Assessment - Debt relief has raised public expectations about the budget; expectations must be managed to protect macroeconomic stabilization. - Government met most indicative targets for end-September 2006; tax revenues have been higher than planned. - Unanticipated development spending on nearly completed projects jeopardized end-December 2006 targets on government spending and domestic borrowing. - Report recommends completion of the third review under the PRGF arrangement. - Staff supports authorities’ request for a waiver for the nonobservance of the performance criterion on government domestic borrowing because it reflects essential unplanned expenditure due to the food crisis. ### Risks, Vulnerabilities, and Medium-Term Outlook - Economic prospects: growth projected to remain above historical trend; inflation projected to fall to single figures. - Key risks: - Recurring food crises due to weather-related vulnerability. - Vulnerability to reversal of recent oil price declines. - Potential strain on domestic policy implementation from delays in expected external financing and rising expenditure pressures weakening expenditure control. - Policy priority: prudent accumulation of external reserves to mitigate external shocks and weather-related risks. ### Program Implementation and Structural Measures - Structural measures and benchmarks included in the program (June 2006–June 2007) and specific tables for quantitative targets, balance of payments, disbursements, and program support are part of the full report and attachments. - Governance and implementation weaknesses highlighted as constraints to attract donor support and sustain medium-term objectives. *Source: IMF Executive Summary (country report content provided).* ### Box 2: Financial Sector Development ### Box 2: Financial Sector Development ### Key findings on financial depth and structure - Commercial bank assets in 2005 were only 12 percent of GDP, well below the average for sub-Saharan Africa, and highly concentrated. - Malawi’s monetization (M2) is comparable with the regional average, but measures of financial depth are weak: - M2: 21.23 percent of GDP (Malawi) versus 31.4 percent (SSA) - Assets: 11.82 percent of GDP (Malawi) versus 23.8 percent (SSA) - Deposits: 16.22 percent of GDP (Malawi) versus 24.3 percent (SSA) - Bank Credit to Private Sector: 6.5 percent of GDP (Malawi) versus 17.0 percent (SSA) - Interest rate environment and spreads discourage intermediation: - Real Deposit Rate: -3.9 percent (Malawi) versus -0.9 percent (SSA) - Lending-Deposit Spread: 22.2 percent (Malawi) versus 12.4 percent (SSA) - Bank concentration index: 100.0 (Malawi) versus 88.9 (SSA) - Large domestic government borrowing has crowded out lending to the private sector. - Negative real deposit interest rates and lending rates that in real terms were among the highest in the region further discourage financial intermediation. ### Related fiscal and sectoral interactions affecting financial development - Private saving and private investment trends (2000–2005) indicate weak private-sector financing activity (charts in source). - Fiscal deficits and high government claims on the economy have been associated with credit to the economy and the composition of M2 (charts in source). - Public enterprise weaknesses (see Boxes 1 and 3) have fiscal and financial sector implications: - Weak management and government interference have undercut efficiency of public utilities. - Utilities accumulated annual losses averaging 1.5 percent of GDP (2000/01–2004/05), largely financed by government lending not fully reflected in fiscal accounts. - By end-2004/05, utilities’ debt obligations to the government reached 5 percent of GDP. ### Policy recommendations and policy-relevant actions - Reduce crowding out of private credit: - Consolidate and reduce large domestic government borrowing to free up bank lending to the private sector. - Improve incentives for intermediation: - Address negative real deposit rates and the high lending-deposit spread to encourage savings mobilization and lending to the private sector. - Strengthen public enterprise governance and the fiscal treatment of social obligations: - Clarify boundaries between utilities’ commercial activities and government-mandated social functions. - Ensure social functions are adequately and transparently financed by the budget. - Explore private sector participation and strengthen monitoring and corporate governance of utilities. - Manage exchange rate and capital flow policies to support export growth and financial stability: - Maintain a flexible exchange rate and a competitive real exchange rate to support export diversification. - Use any real appreciation to accumulate external reserves (monetary conditions permitting) to raise external reserve coverage above 3 months of imports. - Sequence capital account liberalization cautiously: - Liberalization of capital market transactions should proceed slowly until Malawi has a stable macroeconomic environment, stronger financial institutions, better regulation by the RBM, established financial instruments, and deeper financial markets. - Authorities will postpone further consideration of liberalization until after the FSAP. - Strengthen anti–money laundering capacities: - Implement the 2004 recommendations of the Eastern and Southern African Anti–Money Laundering Group; parliament approved anti-money laundering legislation in July 2006. ### Key statistics (End-2005; Malawi versus SSA) - Bank Concentration, index: 100.0 (Malawi) / 88.9 (SSA) - M2 (Percent of GDP): 21.23 (Malawi) / 31.4 (SSA) - Assets (Percent of GDP): 11.82 (Malawi) / 23.8 (SSA) - Deposits (Percent of GDP): 16.22 (Malawi) / 24.3 (SSA) - Bank Credit to Private Sector (Percent of GDP): 6.5 (Malawi) / 17.0 (SSA) - Real Deposit Rate: -3.9 (Malawi) / -0.9 (SSA) - Lending-Deposit Spread: 22.2 (Malawi) / 12.4 (SSA) *Source: IMF and World Bank; material reproduced from Box 2: Financial Sector Development in the provided IMF country material.* ### 19. The government’s key macroeconomic objectives for 2006/07 are largely the ### _cr07147 - 19. The government’s key macroeconomic objectives for 2006/07 are largely the ### Macroeconomic objectives and near-term outlook - Real GDP growth: - A bumper harvest will support a rebound in real GDP growth to 7 percent. - Inflation: - Prospects for falling inflation remain positive, but the target has been increased to 8 percent because of delayed declines in urban food prices. - Inflation dropped sharply in recent months to about 10 percent at end-December 2006. - Declining inflation provides scope for interest rate reductions; authorities reduced the bank rate from 25 percent to 20 percent in mid-November 2006. - Expected trajectory: lower inflation below 10 percent by mid-2007 given moderation in world oil prices, strong agricultural crop, projected deceleration in reserve money growth, and continued exchange rate stability. - Monetary and credit developments: - By the end of September 2006, commercial bank lending to the private sector had increased 28 percent from a year ago. - Reserve money growth will be reduced to offset the unanticipated monetary overhang at the end of June 2006. ### Fiscal performance, adjustment, and fiscal space - End-September 2006 program performance: - Government met most indicative targets for end-September 2006. - Expenditures were broadly as allocated, and tax revenues were significantly higher than planned. - An administrative delay in budget support (about US$28 million) squeezed the monetary program; shortfall only partially covered by a program adjustor. Delayed budget support was received in early October. - As a result of the delay, targets on net foreign assets and net domestic assets at the RBM went unmet, though reserve money was as programmed. - 2006/07 fiscal projections and adjustments: - Since reaching the HIPC completion point, the IMF provided 2.6 percent of GDP (US$60 million or MK 8.4 billion) in debt relief. - MK3.7 billion will still be transferred in 2006/07 on the former flow schedule; the remainder will be transferred this fiscal year and used to reduce domestic debt held by the RBM by 1.4 percent of GDP beyond the programmed domestic debt reduction. - Overall projections of debt service payments are in line with the budget, but additional topping-up HIPC assistance could be delivered this fiscal year. - World Bank expected additional program support of US$20 million (though partially offset by reduced projections from other donors). - Government committed extra resources to additional spending on maize, wages, and development projects (mainly water supply). - Wage bill in 2006/07 increased by 0.1 percent of GDP starting in the third fiscal quarter. - Civil service pensions projected at 1.5 percent of GDP in 2006/07 (versus 1.2 percent of GDP in 2005/06); expected to stay below 2 percent of GDP in the medium term. - Fiscal risks and contingency: - Domestic debt expected to fall to 14.8 percent of GDP, 1.7 percent lower than programmed. - Excluding repayments using funds saved through IMF debt relief, domestic debt would be 16.3 percent of GDP. - Increased spending will reduce the underlying surplus to 0.6 percent of GDP (compared with 1.0 percent of GDP envisaged earlier). - Timing uncertainty of World Bank support may push the fiscal-year domestic borrowing target out of reach; many increased expenditures are planned for the fourth fiscal quarter and will be postponed to 2007/08 if external support is delayed. ### Sources and allocation of fiscal space (percent of GDP) - Sources of fiscal space (98/99-05/06 Avg. ; 06/07-09/10 Avg. ; Change): - Total: 26.54 | 41.11 | 14.6 - Domestic revenues, other receipts: 20.42 | 24.74 | 4.3 - Net foreign financing: 11.01 | 19.48 | 8.4 - Domestic interest payments: -4.8 | -3.0 | 1.8 - Allocations of fiscal space (98/99-05/06 Avg. ; 06/07-09/10 Avg. ; Change): - Total: 26.54 | 41.11 | 14.6 - Wages: 6.2 | 7.7 | 1.5 - Other current spending: 14.5 | 15.0 | 0.5 - Development: 9.4 | 17.2 | 7.8 - Domestic debt reduction: -3.6 | 1.2 | 4.8 - Memorandum: - Pro-poor spending /1: 6.0 | 11.3 | 5.3 - Sources: Malawian authorities and Fund staff projections. (Data available from 2000/01.) ### Implications of reaching the HIPC completion point (Millions of U.S. dollars) - Central Government, Budget (2007/08 | 2008/09): - Debt service before relief: 114 | 113 | 113 - Debt service savings: 88 | 100 | 100 - Debt service after debt relief: 26 | 14 | 13 - Reserve Bank of Malawi (2007/08 | 2008/09): - Debt service before relief: 26 | 13 | 7 - Debt service savings: 26 | 13 | 7 - Debt service after debt relief: 0 | 0 | 0 - Memorandum: - Debt relief resources to budget: 148 | 100 | 100 - Budget debt service savings: 88 | 100 | 100 - Transfer from RBM: 600 | 0 | 0 - Flow transfers: 260 | 0 | 0 - Stock transfer: 340 | 0 | 0 - Sources: Malawian authorities and IMF staff estimates. ### Monetary policy, reserves, and external sector - Reserve and liquidity developments: - Net foreign assets at the RBM increased steeply because of IMF debt relief. - Gross official reserves are still low due to the food crisis and foreign exchange pressures earlier in fiscal year 2006 despite recovery in tobacco export receipts. - If exchange rate stability continues, opportunities exist to build reserves to about 1.7 months of imports by the end of the fiscal year. - Interest rate and treasury bill developments: - Reduction in bank rate from 25 percent to 20 percent in mid-November 2006 prompted declines in treasury bill rates and similar declines in commercial bank lending and deposit rates. - Staff judged the reduction unlikely to trigger a major liquidity expansion given low private sector credit and high intermediation costs. ### Structural measures and reform agenda - Business climate and investment: - Introduce a single business permit and simplified business licensing fee structure treating resident and nonresident investors equally. - Establish the Malawi Investment and Trade Centre to provide one-stop services. - Start a review of selected commercial laws. - Financial intermediation and legal framework: - Tentative elements include enhancing financial stability, strengthening creditor rights, increasing availability of credit market information, and reducing intermediation costs. - Specific measures: passage of the Land Reform Bill; revision of the RBM Act to give the RBM greater autonomy; legislation to govern the microfinance sector (structural benchmark for end-June 2007); introduction of commercial courts. - Public sector enterprises and transparency: - Improve efficiency and financial performance by introducing clear lines of accountability, greater operational and financial autonomy, and procedures to ensure government departments pay utility bills. - Compile quarterly financial reports for major public sector enterprises and publish audited annual financial statements (structural benchmark for end-March 2007). - Public financial management and capacity: - Continue phasing-in the IFMIS and strengthen budget comprehensiveness, internal controls, reconciliation in budget execution, and audited financial reports (structural benchmark for end-October 2006). - Centralize payment of utility bills of all central government entities (performance criterion for end-March 2007). - Strengthen control of the wage bill by compiling monthly reports of payroll execution (structural benchmark for end-March 2007). - Draft and issue guidelines for public sector borrowing to ensure new borrowing is sufficiently concessional and within sustainable levels (structural benchmark for end-June 2007). Staff suggested aiming for a grant element of at least 54 percent and establishing indicative limits on the annual rate of external debt accumulation. - Improve statistical reporting: complete revisions to national accounts and balance of payments; rebase the consumer price index by mid-2007. - Other reforms: - New travel policy to reduce government travel spending from 5½ to 3 percent of total expenditure (structural benchmark for end-September 2006). - Review retail petroleum pricing and taxation arrangements to ensure timely pass-through of world oil prices and consider specific duties rather than ad valorem taxes. - Tackle fiscal risks from extrabudgetary operations; MDC being liquidated with assets sold to settle liabilities; new management at MARDEF and an external audit completed in December to strengthen accountability. ### Program risks - Exogenous and commodity risks: - Vulnerable to recurrent food crises, higher world oil prices, and lower export prices. - Drought could affect hydro-electricity generation which supplies most of Malawi’s power generation. - Fiscal risks: - Potential wage bill overruns persist. - Risk of unrealistic expectations about budget expenditures following HIPC completion point. - Government plans to spend resources that may not be disbursed on time pose challenges for monetary management. - Need to monitor potential liabilities from MDC, MARDEF, and other institutions. - Allowing ADMARC to borrow commercially poses fiscal risks. - External financing risk: - Risk that external financing (for example, from the World Bank) may be delayed until 2007/08, increasing pressure to build external reserves and maintain strict expenditure controls. ### Staff appraisal and recommendations - Overall assessment: - Malawi is at an opportune juncture given progress toward macroeconomic stabilization, delivery of debt relief, and launch of the MGDS. - Macroeconomic performance in 2005/06 was broadly satisfactory despite the food crisis: strong real GDP growth, declines in domestic debt/GDP ratio and non-food inflation, and improved exchange rate management. - Prospects for 2006/07 are favorable but public spending pressures need containment. - Key recommendations and priorities: - Stay focused on macroeconomic stability while avoiding unrealistic budget expectations arising from debt relief. - Guard against expenditure pressures by containing funding releases in final months of 2006. - Build external reserves and maintain strict expenditure controls to mitigate exogenous shocks. - Advance an ambitious structural reform agenda to improve growth: lower cost of doing business, enhance access to credit, improve public service delivery, and strengthen public financial management. - Absorb higher aid and private capital flows while maintaining macroeconomic stability; balance immediate spending pressures with need to increase low external reserve coverage. - Complete the public expenditure review with the World Bank and conduct timely annual performance reviews of the MDGS, incorporating findings into the budget. - Continue commitment to a flexible exchange rate; staff concurs that the current real exchange rate is broadly appropriate. - Recommendation on program review: - On the basis of performance through end-June 2006 and in the first half of 2006/07, and the authorities’ continued commitment to program implementation, staff recommends completion of the third review under the PRGF arrangement. *Source: IMF staff report (2006/07).* ### 45. It is recommended that the next Article IV Consultation take place within 24 ### _cr07147 - 45. It is recommended that the next Article IV Consultation take place within 24 ### National income and prices - GDP at constant market prices: 2.1, 3.9, 5.1, 2.1, 8.4, 8.5, 5.6, 5.7, 5.5 - Nominal GDP (billions of kwacha): 148.4, 171.9, 207.2, 245.7, 303.5, 305.1, 345.2, 349.5, 396.8 - Nominal GDP per capita (U.S. dollars): 160.3, 143.1, 150.9, 161.4, 167.2, 170.7, 171.8, 179.8, 188.6 - GDP deflator: 16.6, 9.2, 12.5, 15.4, 13.9, 14.4, 7.7, 8.4, 7.6 - Consumer prices (end of period): 11.5, 9.8, 13.7, 16.5, 7.9, 9.9, 8.0, 8.1, 7.4 - Food (end of period): 8.2, 3.0, 14.1, 17.2, 8.7, 10.0, 7.4, 7.4, 7.3 - Nonfood (end of period): 15.9, 18.6, 13.3, 15.8, 8.2, 9.7, 9.0, 9.0, 7.4 - Consumer prices (annual average): 14.9, 9.6, 11.4, 15.5, 13.1, 14.0, 7.2, 8.4, 7.5 ### Investment and savings (percent of GDP) - National savings: -6.4, 2.9, 4.5, -3.1, 7.9, 7.6, 16.7, 18.0, 23.0 - Domestic savings: -16.7, -12.1, -10.6, -23.9, -9.3, -13.1, -3.5, -4.4, 1.8 - Unrequited transfers: 12.6, 17.3, 17.3, 22.8, 18.8, 22.4, 21.2, 23.2, 21.7 - Gross investment: 10.4, 10.8, 14.4, 13.0, 15.6, 14.6, 18.5, 19.2, 24.5 - Foreign savings: 16.8, 7.9, 9.9, 16.1, 7.7, 7.0, 1.8, 1.2, 1.6 ### Central government (percent of GDP) - Revenue (excluding grants): 17.7, 22.0, 23.2, 25.5, 24.4, 24.3, 23.9, 24.0, 24.3 - Expenditure and net lending: 35.1, 39.3, 44.0, 43.1, 43.1, 43.6, 41.3, 40.9, 44.7 - Underlying balance (measure of domestic adjustment effort): -2.8, -0.5, 0.8, -0.7, 0.5, 0.9, 0.5, 1.0, 0.5 - Overall balance (excluding grants): -17.4, -17.3, -20.8, -17.6, -18.8, -19.3, -17.4, -16.8, -20.4 - Overall balance: -11.6, -6.5, -6.6, -1.5, -3.4, -3.4, 0.1, -0.1, -1.2 ### Money and credit (change in percent of beginning-of-year M2) - Money and quasi money: 25.2, 29.3, 29.8, 14.3, 22.1, 22.0, 13.7, 15.5, 14.1 - Net foreign assets: -55.4, 21.5, 6.0, 5.1, 6.3, 24.4, 15.3, 20.0, 19.8 - Net domestic assets: 80.6, 7.8, 23.8, 9.2, 15.7, -2.4, -1.5, -4.5, -5.6 - Credit to the government: 45.1, 11.3, 10.3, 2.1, 25.0, -2.1, -18.1, -10.7, -24.3 - Credit to the rest of the economy: 4.1, 8.1, 11.3, 5.6, -4.1, 7.7, 3.9, 5.1, 4.3 - Velocity: 5.4, 4.9, 4.5, 4.7, 4.8, 4.8, 4.8, 4.8, 4.7 ### External sector (millions of U.S. dollars) - Exports, f.o.b.: 421, 433, 502, 507, 572, 467, 593, 464, 482 - Imports, c.i.f.: -698, -689, -810, -1,070, -1,070, -889, -1,049, -836, -877 - Usable gross official reserves: 103, 116, 119, 131, 114, 143, 207, 242, 325 - (months of imports): 1.4, 1.4, 1.1, 1.4, 1.2, 1.6, 2.2, 2.6, 3.2 - Current account (excluding transfers, in percent of GDP): -29.4, -25.2, -27.3, -38.9, -26.5, -29.4, -23.0, -24.5, -23.3 - Nominal effective exchange rate (percentage change): -28.6, -23.6, -4.3, -11.4 - Real effective exchange rate (percentage change): -24.8, -17.2, 5.5, 0.1 - Terms of trade: -3.1, -6.5, -2.5, -10.2, -1.2, -1.2, -0.3, -4.4, 0.4 ### Debt stock and service (percent of GDP) - External debt (public sector): 148, 164, 155, 143, 48, 53, 132, 33, 34 - NPV of debt (percent of avg. exports): 278.4, 268.0, 257.7, 361.0, 220.0, 33.6, 205.8, 45.1, 52.8 - External debt service (percent of exports): 18.6, 22.2, 21.6, 22.1, 16.2, 30.7, 6.4, 4.5, 3.5 - Net domestic debt (central government): 17.4, 22.3, 22.6, 21.9, 19.7, 17.4, 14.7, 12.6, 9.2 - Domestic interest payment: 4.0, 7.9, 8.4, 6.3, 4.9, 4.9, 3.5, 3.1, 2.3 - Treasury bill rate (period average): 41.7, 39.3, 28.6, 24.4 ### Central government operations (2006/07 quarterly and annual program/projection highlights; millions of Malawi kwacha) - Total revenue and grants (annual program): 135,514; (annual projection): 137,751 - Revenue (annual program): 78,355; (annual projection): 79,258 - Tax revenue (annual program): 69,152; (annual projection): 72,259 - Nontax revenue (annual program): 9,203; (annual projection): 6,998 - Grants (annual program): 57,159; (annual projection): 58,494 - Budget/program support (annual program): 6,008; (annual projection): 8,551 - Project grants (annual program): 24,242; (annual projection): 27,680 - Dedicated grants (annual program): 14,502; (annual projection): 15,576 - Health swap (quarter entries): 0; 2,890; 1,177; 3,075; annual total 7,142 - HIPC debt relief (quarter entries): 2,138; 982; 1,178; 779; annual total 5,078 - MDRI debt relief from IMF (quarter entries): 638; 1,261; 663; 1,123; annual total 3,685 - Total expenditure and net lending (annual program): 139,887; (annual projection): 142,292 - Current expenditure (annual program): 91,465; (annual projection): 91,291 - Wages and salaries (annual program): 23,375; (annual projection): 24,027 - Interest payments (annual program): 15,645; (annual projection): 14,764 - Domestic interest (annual program): 13,791; (annual projection): 13,323 - Foreign interest (annual program): 1,854; (annual projection): 1,441 - Purchases of goods and services (annual program): 29,479; (annual projection): 29,025 - Maize purchases (annual program): 2,080; (annual projection): 2,060 - Health SWAp (annual program): 6,123; (annual projection): 5,678 - Subsidies and transfers (annual program): 20,965; (annual projection): 21,476 - Fertilizer subsidy (annual program): 4,030; (annual projection): 2,495 - Development expenditure (annual program): 47,732; (annual projection): 50,310 - Part I (foreign financed) (annual program): 40,673; (annual projection): 41,631 - Part II (domestically financed) (annual program): 7,059; (annual projection): 8,679 - Overall balance (including grants): -4,373 (program), -4,540 (projection) - Total financing (program): 4,373; (projection): 4,540 - Foreign (net) (program): 5,737; (projection): 6,163 - Borrowing (program): 11,828; (projection): 10,707 - Amortization (program): -6,090; (projection): -4,544 - Domestic (net) (program): -1,364; (projection): -6,293 - Other financing (IMF MDRI relief) (projection): 4,670 - Memorandum items: - Nominal GDP (mem): 324,355 (program); 327,320 (projection) - Net domestic debt (mem): 53,639 (program); 48,536 (projection) - MDRI/HIPC debt service relief, total (mem program): 16,692; (projection): 20,720 ### Central government operations: Multi-year (millions of Malawi kwacha and percent of GDP) - Total revenue and grants (2002/03–2008/09, millions): 42,685; 65,817; 84,925; 117,394; 117,116; 135,514; 137,751; 157,846; 172,068 - Total expenditure and net lending (2002/03–2008/09, millions): 61,322; 80,536; 97,215; 122,842; 119,737; 139,887; 142,292; 159,344; 179,214 - Total revenue and grants (percent of GDP): 26.7, 34.7, 37.5, 43.3, 42.5, 41.8, 42.1, 42.3, 40.7 - Total expenditure and net lending (percent of GDP): 38.3, 42.5, 42.9, 45.3, 43.5, 43.1, 43.5, 42.7, 42.4 - Development expenditure (percent of GDP): 7.4, 11.1, 11.0, 12.8, 9.5, 14.7, 15.4, 17.8, 17.9 - Underlying balance (percent of GDP, memorandum): -2,781; -1,648; 4,189; 4,805; 2,601; 3,208; 2,118; 4,292; 580 *Sources: Malawian authorities; and IMF staff estimates and projections.* ### Part II (domestically financed)1.41.81.11.41.42.22.72.83.0 ### Part II (domestically financed)1.41.81.11.41.42.22.72.83.0 ### Fiscal balances and augmented balances - Net lending: 0.0 0.0 0.3 0.0 0.0 0.2 0.2 0.0 0.0 - Overall balance (including grants): -11.6 -7.8 -5.4 -2.0 -1.0 -1.3 -1.4 -0.4 -1.7 - Spending directly related to privatization1: 0.0 0.0 0.0 0.8 1.0 0.0 0.0 0.0 0.0 - Augmented balance: -11.6 -7.8 -5.4 -2.8 -2.0 -1.3 -1.4 -0.4 -1.7 - Underlying balance2: -1.7 -0.9 1.8 1.8 0.9 1.0 0.6 1.2 0.1 - Overall balance (excluding grants): -18.3 -19.9 -17.8 -20.8 -19.0 -19.0 -19.3 -18.2 -18.3 - Pro-poor spending: 5.5 6.0 9.0 6.8 11.4 12.4 11.1 11.4 11.5 ### Financing (total and by source) - Total financing: 11.3 7.9 5.7 2.8 2.1 1.3 1.4 0.4 1.7 - Foreign (net): -0.5 0.2 2.7 2.1 0.4 1.8 1.9 2.1 3.0 - Borrowing: 3.1 3.8 5.1 5.8 4.0 3.6 3.3 2.7 3.6 - Program: 0.0 0.7 2.3 1.2 1.2 0.4 0.9 0.3 1.1 - Project: 3.1 3.1 2.8 4.6 2.8 3.3 2.4 2.4 2.6 - Amortization: -3.4 -4.0 -3.6 -3.7 -3.7 -1.9 -1.4 -0.6 -0.6 - Domestic (net): 11.8 7.7 3.0 -0.6 0.3 -0.4 -1.9 -1.7 -1.4 - Other financing (privatization, IMF MDRI etc.): -0.2 0.0 0.0 0.0 1.3 1.4 0.0 1.4 0.0 - Discrepancy (- is overfinancing): 0.3 -0.1 -0.3 0.0 -0.2 0.0 0.0 0.0 0.0 ### Public debt and liabilities (memoranda) - Net domestic debt: 20.4 24.8 23.8 19.3 19.9 16.5 14.8 11.3 8.6 - MDRI/HIPC debt service relief, total3: (period entries) ...............5.1 6.3 5.4 ... - IMF: ...............1.2 2.6 0.0 ... - IDA: ...............2.3 2.2 2.3 ... - AfDB: ...............0.3 0.3 0.5 ... - Paris Club Bilaterals and others: ...............1.4 1.3 2.6 ... - Liabilities of state owned enterprises4: ......12.7...12.6............ Footnotes retained from source: - 1 Includes for 2005/06 transactions related to the sale of MTL: retrenchment costs and the capital injection less debt repayment. - 2 Definition: Overall balance plus statistical discrepancy, less grants, less revenue from maize, plus total interest, plus expenditures for maize and the Health SWAp, plus foreign-financed development expenditures. - 3 This includes debt service savings from debt cancellation and relief provided through transfers. - 4 Include ADMARC, the Waterboards, MDC, Air Malawi, MHC and MPC. ### Real economy and external sector key indicators - Real GDP growth, percent: 3.0 4.5 3.5 5.1 5.3 7.0 7.0 5.6 5.5 - Inflation (consumer prices, end-period), percent: 8.5 11.6 15.9 10.3 15.3 5.7 8.1 7.4 7.4 - Current account, percent of GDP: -12.0 -9.0 -13.3 -6.0 -11.2 -4.5 -4.7 -2.0 -2.5 ### Monetary authorities' balance sheet and monetary survey (selected items) - Reserve money (selected series, millions of Malawi kwacha): 17,967 16,196 19,580 20,115 20,611 17,500 22,750 20,924 21,163 20,341 22,067 22,060 18,958 23,764 25,245 25,532 - Currency outside banks: 10,993 9,976 13,050 12,785 11,947 11,793 ... 15,830 ... 16,421 ... - Cash in vault: 1,861 1,567 1,866 1,787 2,331 1,915 ... 1,690 ... 2,058 ... - Commercial bank deposits with RBM: 5,114 4,653 4,664 5,543 6,333 3,793 ... 3,404 ... 1,862 ... - Net foreign assets (NFA) of monetary authorities: 2,919 158 4,060 9,142 6,948 3,455 7,606 8,623 12,844 10,671 9,187 18,098 16,899 18,000 31,316 29,927 - NFA (millions of U.S. dollars): 26.8 1.4 33.0 73.7 56.1 25.8 61.8 62.0 104.4 77.2 74.7 128.9 118.2 123.9 212.1 199.4 - Net domestic assets: 15,048 16,038 15,520 10,972 13,663 14,045 15,145 12,301 8,319 9,669 12,880 3,962 2,059 5,763 -6,071 -4,395 - Credit to government (net), monetary authorities: 12,046 20,297 22,181 11,957 11,339 12,706 12,613 6,430 10,877 9,556 12,504 8,897 8,117 6,425 405 3,194 - Open market operations (monetary authorities): -5,582 -13,592 -16,907 -10,061 -7,881 -6,088 -6,621 -3,496 -5,140 -7,207 -4,445 -11,927 -15,335 -12,929 -20,649 -24,371 - Money and quasi-money (broad money) (millions of Malawi kwacha): 45,666 44,552 50,625 51,081 52,208 54,079 59,740 58,328 61,644 60,637 63,724 63,716 62,146 71,469 72,534 73,583 - Money: 25,443 24,400 28,977 29,171 30,204 29,941 ... 33,249 ... 33,811 ... - Quasi money: 20,222 20,151 21,648 21,910 22,004 24,138 ... 25,080 ... 26,826 ... - Of which: foreign currency deposits: 7,120 7,284 8,246 7,564 6,475 9,300 ... 8,807 ... 10,908 ... - Net foreign assets (NFA) (monetary survey): 7,593 3,092 9,054 12,475 9,929 9,417 13,227 13,714 17,789 18,726 13,209 22,690 21,144 23,769 37,695 35,435 - NFA (millions of U.S. dollars): 69.7 27.7 73.6 100.5 80.2 70.4 107.5 98.7 144.6 135.4 107.4 161.6 147.9 163.6 255.3 236.1 - Net domestic assets (monetary survey): 38,073 41,460 41,571 38,607 42,279 44,661 46,513 44,614 43,855 41,911 50,515 41,027 41,002 47,700 34,839 38,148 - Credit to private sector (monetary survey): 13,926 13,227 16,497 18,201 17,500 16,500 20,121 21,126 20,335 22,544 15,391 20,812 19,388 24,818 26,315 24,179 - Seasonally adjusted broad money (memorandum): 45,623 47,400 48,437 50,133 52,139 57,386 56,892 55,712 60,594 59,482 63,648 63,632 65,948 68,263 71,152 73,486 - Quarterly change: 7.0 3.9 2.2 3.5 4.0 10.1 4.3 -2.9 5.1 6.8 5.0 7.0 3.6 3.5 4.2 3.3 - Annual change: 29.7 24.0 18.4 17.6 14.3 21.1 18.0 15.0 20.7 18.6 22.1 22.0 14.9 22.5 19.6 15.5 ### Balance of payments and external financing (selected) - Current account balance (including grants) (Millions of U.S. dollars): -332.2 -139.9 -191.5 -336.1 -169.5 -160.2 -42.1 -32.0 -43.5 -83.6 - Merchandise trade balance: -284.0 -255.7 -310.9 -565.1 -497.8 -426.1 -455.7 -374.4 -397.7 -465.2 - Exports: 413.5 433.4 499.3 504.5 572.0 463.2 592.9 461.8 479.6 500.5 - Of which: Tobacco: 232.8 205.9 258.8 279.0 295.1 245.5 303.4 245.5 252.4 260.0 - Imports: -697.5 -689.1 -810.2 -1069.6 -1069.8 -889.3 -1048.6 -836.2 -877.3 -965.7 - Of which: Petroleum: -63.0 -78.5 -95.9 -137.2 -177.5 -180.7 -187.9 -196.6 -198.7 -203.7 - Emergency Maize: -102.8 -5.5 0.0 -63.7 -40.0 -40.0 0.0 0.0 0.0 0.0 - Services balance: -291.7 -189.3 -210.4 -244.7 -84.6 -234.8 -74.5 -216.5 -205.0 -197.6 - Interest public sector (net): -20.2 -25.5 -27.7 -25.9 -18.9 -19.8 -3.6 -4.5 5.1 10.3 - Receipts: 2.5 1.5 0.7 0.7 3.0 1.5 5.3 1.2 11.4 16.3 - Payments (amounts due before HIPC debt relief): -22.7 -27.0 -28.4 -26.6 -22.0 -21.3 -8.9 -5.7 -6.3 -6.1 - Unrequited transfers (net): 243.4 305.1 329.8 473.7 412.9 500.7 488.1 558.9 559.1 579.2 - Private (net) receipts/payments: Receipts 21.6 156.4 127.9 203.6 143.0 185.1 147.3 189.4 192.7 198.8; Payments -13.4 -15.3 -11.6 -11.8 -10.6 -12.1 -10.8 -12.4 -12.7 -13.0 - Official (net) receipts: 235.3 164.0 213.4 281.9 280.5 327.7 351.7 381.9 379.1 393.4 - Balance of payments assistance: 12.8 41.7 64.4 97.2 46.1 68.2 98.9 83.5 79.7 77.6 - Capital account balance (incl. errors and omissions): 177.3 101.7 166.2 308.3 111.2 99.3 89.1 95.4 117.1 132.7 - Medium- and long-term flows: 23.8 10.9 16.2 20.4 50.0 24.1 58.9 65.2 83.3 96.8 - Disbursements: 81.0 96.7 95.3 97.5 113.3 86.5 90.8 82.9 96.1 111.4 - Amortization (amounts due before HIPC debt relief): -57.2 -68.6 -74.8 -77.1 -63.4 -62.4 -31.9 -17.7 -12.8 -14.6 - MDRI debt forgiveness on debt due after current year: 1844.0 1864.0 375.7 383.0 (entries shown) - MDRI grants from ADF: 0.0 0.0 375.7 383.0 - MDRI grants from IDA: 1798.0 1804.0 0.0 0.0 - MDRI grants from IMF: 46.0 60.0 0.0 0.0 - Overall balance: -154.9 -38.2 -25.3 -27.8 -58.3 -60.9 46.9 63.3 73.6 49.0 - Financing (- increase in reserves): 154.8 38.2 25.4 27.8 58.3 60.8 -46.9 -63.4 -73.6 -49.1 - Gross official reserves (Millions of U.S. dollars): 162.0 122.6 128.6 159.2 117.9 147.4 210.5 245.6 328.9 379.8 - Months of imports3: 2.2 1.4 1.2 1.8 1.2 1.6 2.2 2.6 3.2 3.6 - Current account balance (percent of GDP) excluding official transfers: -29.3 -17.2 -21.3 -29.8 -20.5 -21.8 -17.1 -17.2 -16.4 -17.2 - Including official transfers: -17.2 -7.9 -10.1 -16.2 -7.7 -7.2 -1.8 -1.3 -1.7 -3.0 ### Gross financing requirements and sources (summary) - Gross financing requirements (Millions of U.S. dollars): -521.7 -391.1 -501.4 -733.3 -530.5 -2440.1 -919.1 -522.8 -547.5 - External current account deficit (excl. official transfers): -567.5 -303.9 -405.0 -618.1 -388.9 -487.9 -413.9 -422.7 -477.1 - Official debt amortization: -63.4 -77.9 -88.5 -96.0 -111.3 -1955.5 -402.9 -12.8 -14.6 - Sources of financing: 521.7 391.1 501.5 733.3 530.5 2440.0 919.0 522.8 547.5 - Private capital (net): 153.5 73.6 145.7 287.9 22.2 29.8 32.4 33.8 35.9 - Gross official Assistance: 339.3 270.0 308.8 387.7 452.4 428.6 492.5 482.6 504.8 - Official Grants: 235.3 164.0 213.4 281.9 290.2 327.7 351.7 381.9 393.4 - Loan Disbursements: 104.0 106.0 95.3 105.8 162.2 100.9 110.6 103.5 111.4 - Debt relief (including MDRI): 28.9 47.5 47.0 57.6 46.2 103.0 29.9 9.0 6.4 6.8 - Memorandum items (percent of GDP): Gross financing requirements: -26.9 -22.0 -26.4 -35.2 -24.6 -108.9 -38.2 -20.3 -19.8 ### Quantitative program targets (selected) - Ceiling on net domestic assets of the monetary authorities (PC): 15,520 (stock) with adjusters and actuals shown in table. - Ceiling on reserve money (IT): 19,580 (stock) with adjusters and actuals shown in table. - Ceiling on central government's net domestic borrowing (PC): 53,923 (stock) with reported adjusted actuals. - Ceiling on central government wages and salaries (PC): entries around 14,914; 15,087; 15,344; 20,448; 20,320; 20,209; 26,158; 26,030; 25,921 (as presented). - Ceiling on central government discretionary expenditures (IT): entries around 40,873; 40,486; 47,087; 53,054; 54,258; 58,976; 73,898; 75,548; 72,735 (as presented). - External targets (millions of U.S. dollars): - Floor on net foreign assets of the monetary authorities (PC): 33.0 (stock) with adjusters and actuals (e.g., -1.0 -10.0 -11.0 -7.2 28.8 -9.6 19.3 29.0 71.4 -13.3 58.1 44.2). - Ceilings on accumulation of external payment arrears and new nonconcessional external debt: 0.0 (continuous evaluation) as shown. *Sources: Malawian authorities; Reserve Bank of Malawi; and IMF staff estimates and projections.* ### 1. Ceiling on net domestic assets of the monetary authorities ### 1. Ceiling on net domestic assets of the monetary authorities ### Monetary targets and performance - Ceiling on net domestic assets of the monetary authorities: (table header) - PC - Quarterly/period values (as listed in source): 15,520; -7,201; 1,634; -5,567; -4,673; -2,640; -9,312; -12,499; -8,478 - Ceiling on reserve money: - IT - Values shown: 19,580; 1,582; ...; 1,582; 760; 2,486; 2,479; -623; 4,183 - Program exchange rate: - Values by period: 123; 123; 123; 123; 123; 123; 123; 139; 139 - Liquidity Reserve Requirement (percent): 20.0; 0; ...; 20.0; 20.0; 20.0; 20; 20 ### Fiscal targets and key fiscal numbers (Millions of Malawi kwacha) - Ceiling on central government's net domestic borrowing: - PC - Values shown: 53,923; 3,206; -2,033; 1,174; -146; 6,010; -806; -1,289; -5,387 - Ceiling on central government wages and salaries: - PC - Values shown: ...; 26,158; -128; 26,030; 25,921; 31,956; 31,716; 38,026; 44,236 - Ceiling on central government discretionary expenditures: - IT - Values shown: ...; 73,898; 1,650; 75,548; 72,735; 90,413; 92,878; 108,363; 120,846 ### External targets (Millions of U.S. dollars) - Floor on net foreign assets of the monetary authorities: - PC - Values shown: 33.0; 71.4; -13.3; 58.1; 44.2; 41.7; 95.9; 85.2; 90.9 - Ceiling on the accumulation of external payments arrears: - PC (evaluated continuously) - Values shown: ...; 0.0; ...; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0 - Ceiling on new nonconcessional external debt with a maturity of one year or more: - PC - Values shown: ...; 0.0; ...; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0 - Ceiling on new nonconcessional external debt with a maturity of less than one year: - PC - Values shown: ...; 0.0; ...; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0 ### Memorandum items (exact figures as provided) - Balance of payments support (in millions of U.S. dollars): 159.0; -10.0; ...; 139.6; 167.4; 181.1; 196.1; 216.1 - Debt service payments to the WB and the ADB (in millions of US dollars): 7.0; 3; ...; 10.3; 7.4; 10.8; 11.0; 11.5 - IMF debt relief transfers from the RBM to the CG (in millions of US dollars): 4.5; 40; ...; 44.7; 13.2; 47.4; 52.1; 59.9 - Health SWAp wage expenditures (in millions of kwacha): 977; -128; ...; 849; 1,230; 1,102; 1,360; 1,621 - Health SWAp ORT expenditures (in millions of kwacha): 4,413; 1,650; ...; 6,063; 7,050; 7,050; 8,763; 10,756 - Net Movement in special accounts (in millions of kwacha): 3,590; -1,698; ...; 1,892; 1,915; 2,515; 2,515; 1,091 - Cash payment of arrears (in millions of kwacha): 2,500; 0; ...; 3,689; 3,000; 4,384; 4,603; 4,822 ### Structural performance criteria and benchmarks (selected items and dates) - Performance Criterion: - Implementation of a centralized IFMIS mechanism for paying central government utility bills. — End-March 2007 - Structural Benchmarks: - Eliminate import backlog of commercial bank foreign exchange applications for import-related payments. — End-Jun. 2006 — Implemented with a delay - Develop and implement new travel policy, which includes mechanisms for monitoring adherence. — End-Sept 2006 — Implementation imminent - Formulate an action plan to address weaknesses in the area of PFM. — End-Oct. 2006 — Implemented - Compile quarterly financial reports for key public sector enterprises and publish their audited annual financial statements. — End-March 2007 - Compile monthly reports on payroll execution. — End-March 2007 - Issue external debt management guidelines. — End-June 2007 - Submit legislation to Cabinet governing the microfinance sector. — End-June 2007 ### Schedule of disbursements under the PRGF arrangement (Million of SDRs) - Amounts and dates as listed: - 5.4190 — Aug-05 — Executive Board approval of three-year PRGF arrangement - 4.9245 — Mar-06 — Completion of 1st review and observance of end-Sep. 2005 PCs - 4.9245 — Sep-06 — Completion of 2nd review and observance of end-Dec. 2005 PCs - 6.6800 — Feb-07 — Completion of 3rd review and observance of end-Jun. 2006 PCs - 6.6800 — May-07 — Completion of 4th review and observance of end-Dec. 2006 PCs - 4.7710 — Nov-07 — Completion of 5th review and observance of end-Jun. 2007 PCs - 4.7710 — May-08 — Completion of 6th review and observance of end-Dec 2007 PCs - Total: 38.1700 ### Indicators of Fund credit and related projections (selected figures) - Fund credit outstanding (Millions of SDRs): 59.6; 52.6; 12.9; 31.1; 35.8; 35.8; 35.8; 35.4; 32.0; 25.1; 17.4; 9.8 - Fund credit outstanding (Millions of U.S. dollars): 89.7; 80.4; 19.8; 47.6; 54.9; 54.9; 54.9; 54.1; 49.1; 38.4; 26.7; 15.0 - Percent of quota: 85.8; 75.8; 18.6; 44.8; 51.6; 51.6; 51.6; 50.9; 46.2; 36.1; 25.1; 14.1 - Proposed disbursement (Millions of SDRs): 0.0; 5.4; 9.8; 18.1; 4.8; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0 - Memorandum items: - Quota (millions of SDR): 69.4 (each year listed) - Export of goods and nonfactor services (millions of U.S. dollars): 540; 554; 515; 522; 543; 567; 592; 626; 676; 719; 766; 818 - Gross official reserves (millions of U.S. dollars): 119; 131; 143; 242; 325; 376; 453; 505; 536; 568; 602; 638 ### Macroeconomic performance and policy update (FY2005/06 and FY2006/07) - FY2005/06 performance and outcomes: - Real GDP growth was 5.3 percent. - Non-food inflation fell below 13 percent. - Overall inflation remained above 15 percent. - Domestic borrowing was 0.3 percent of GDP, about 0.9 percentage points higher than programmed. - Domestic debt fell below 20 percent of GDP. - Reserve money: reduction in LRR in February 2006 and mop-up operations reduced excess liquidity, but a modest monetary overhang remained at end-June. - T-bill yields: remained about 5 percentage points lower than at the start of the year. - FY2006/07 outlook and policy commitments: - Revised growth outlook: rebound in real GDP growth above 8 percent in 2006 and to 6 percent in 2007. - Revised inflation outlook: fiscal year outlook for overall inflation modestly upwards to about 8 percent. - End-September 2006 indicators: reserve money on target; missed target on net foreign assets of the RBM due to delayed budget support (~US$28 million); missed net domestic assets target for that period; budget support received in early October expected to restore compliance for end-December. - Fiscal stance: government committed to implementing the August 2006 budget; preliminary first-quarter FY2006/07 budget performance stronger than envisaged with substantially higher domestic tax revenues. - Food/security and agriculture operations: - Additional maize purchases to replenish the Strategic Grain Reserve at an additional cost of about MK 0.8 billion. - ADC authorized to finance maize purchases through off-budget domestic commercial borrowing for commercial resale. - Accelerating fertilizer operations to ensure timely delivery. - Payroll: projected to be about 0.1 percent of GDP larger than budgeted due to additional hiring in health and education and additional compensation for judiciary and National Assembly. - Arrears: plan to securitize a portion of domestic arrears into government bonds with maturity of 1 to 3 years; expected completion by end-June 2007. - External support: World Bank planning to provide US$20 million in additional program support in the second half of the fiscal year. - Domestic debt projection: domestic debt, excluding securitization, projected to fall to 14.8 percent of GDP (about 2 percentage points lower than programmed). - Monetary policy stance: anchored by a reserve money growth target; constraint on reserve money growth to meet end-June 2007 money stock target. - Credit to private sector: by end-September, private sector credit had increased 28 percent over a year before on a seasonally adjusted basis. - Inflation developments: overall 12-month inflation dropped to 11.6 percent at end-September 2006; outlook expects inflation below 10 percent given crop, lower oil prices, and deceleration in reserve money growth; monetary authorities prepared to raise interest rates if inflation target threatened. *Source: _cr07147 - 1. Ceiling on net domestic assets of the monetary authorities (IMF PDF content provided)* ### 19. We are committed to a flexible exchange rate policy consistent with the ### 19. We are committed to a flexible exchange rate policy consistent with the ### Exchange rate policy and external reserves - Net foreign assets increased steeply in September 2006 as a result of IMF debt relief under the MDRI. - Gross official reserves remained low because of: - the food crisis, - the disruption to the tobacco market, - pressures on the foreign exchange market earlier this year. - Restoring import coverage is an important priority. - The stability of the exchange rate and modest appreciation since reaching the HIPC completion point, if continued, will provide opportunities to build reserves. - Projection: gross official reserves are expected to rise to about 1.7 months of imports at the end of the fiscal year, up from 1.5 months at the end of June 2006. ### III. STRUCTURAL MEASURES — overview - The MGDS provides the basis for an ambitious medium-term agenda of structural reform. - Within the PRGF-supported program, focus areas are: - measures to enhance growth, - strengthening economic management capacity. ### A. Enhancing Growth — key impediments and actions - Five major impediments to private-sector-led growth identified: - the perception of macroeconomic instability, - inadequate access to credit, - unreliable supply of power, - the high costs of doing business, - the lack of skilled labor. - Actions and commitments: - Finalize a Private Sector Development Program in early 2007 (implementation supported by the World Bank). - Streamline administrative procedures to reduce costs of doing business (consolidating business licenses, addressing cross-border trade, and business closure procedures) during this fiscal year. - Review selected commercial laws in the current fiscal year. - Develop a comprehensive strategy to strengthen financial intermediation (to be refined after the Financial Sector Assessment Program in mid-2007). Key elements include: - enhancing financial stability, - strengthening creditor rights, - increasing the availability of information in credit markets, - reducing intermediation costs. - Passage of the Land Reform Bill to increase access to collateral-based lending in the rural sector. - Revise the RBM Act to strengthen banking supervision and, as part of a SADC initiative, to give the RBM greater autonomy. - Consider legislation to govern the microfinance sector to expand access for the rural poor (structural benchmark for end-June 2007). - Introduce commercial courts to facilitate resolution of commercial disputes and foster a credit culture. - Improve performance of public sector enterprises by: - introducing clear lines of accountability for ministers, Boards of Directors, and chief executives, - allowing greater operational and financial autonomy, - introducing better practices. - Monitoring fiscal risks: compile quarterly financial reports for major public sector enterprises, including utilities and ADMARC, and publish their audited annual financial statements (structural benchmark for end-March 2007). ### B. Building Economic Management Capacity — key actions - Strengthen public financial management (PFM): - Action plan developed (structural benchmark for end-October 2006). - Continue phase-in of IFMIS. - Strengthen budget comprehensiveness, internal controls, reconciliation in budget execution, and audited financial reports. - Use IFMIS to ensure utility bills of all central government entities are paid on a timely basis (performance criterion for end-March 2007). - Strengthen control of the wage bill by compiling monthly reports of payroll execution (structural benchmark for end-March 2007). - External debt management: - Develop and issue guidelines for the entire public sector to ensure new borrowing is sufficiently concessional and accumulated within sustainable levels (structural benchmark for end-June 2007). - Statistics and data: - Revise the national accounts and the balance of payments with Fund technical assistance; expect to complete revisions by the end of the fiscal year. - Strengthen compilation of the consumer price index and complete revision of weights using the 2004 Integrated Household Survey by end-June 2007. - Improve data collection on project inflows (not all donors fully engaged). - Travel policy: - New travel policy focuses on accountability and transparency (structural benchmark for end-September 2006). - Policy elements: tighter travel authorization procedures, enhanced ex-post monitoring, audit and validation of travel claims, streamlined daily subsistence allowances. - Target: reduce government travel spending from about 5½ percent of total expenditure to about 3 percent. - Oil pricing: - Government reviewing pricing and taxation arrangements for oil products. - Options discussed with industry to ensure timely pass-through of world oil price changes while smoothing large shocks. ### Quantitative targets and program mechanics (highlights) - Program exchange rate: MK139 per US$1 (program exchange rate listed as 123 earlier in table cells but program rate explicitly stated in the technical memorandum as MK139 per US$1 for valuation of NDA; table shows program exchange rate rows with values including 123 and 139). - Monetary and fiscal ceilings and floors are specified in Table 1 (data in Malawi kwacha and U.S. dollars across dates including Jun. 2005, End-Sep. 2006, End-Dec. 2006: Test Date, End-Mar 2007, End-June 2007: Test Date). - Selected table figures (preserve exact reported values as in table excerpts): - Liquidity Reserve Requirement (percent): 20.0 - Balance of payments support (in millions of U.S. dollars): 159.0; -10.0; ...; 139.6; 167.4; 181.1; 196.1; 216.1 - Debt service payments to the WB and the ADB (in millions of US dollars): 7.0; ...; 10.3; 7.4; 10.8; 11.0; 11.5 - IMF debt relief transfers from the RBM to the CG (in millions of US dollars): 4.5; 40; ...; 44.7; 13.2; 47.4; 52.1; 59.9 - Health SWAp wage expenditures (in millions of kwacha): 977; -128; ...; 849; 1,230; 1,102; 1,360; 1,621 - Health SWAp ORT expenditures (in millions of kwacha): 4,413; 1,650; ...; 6,063; 7,050; 7,050; 8,763; 10,756 - Net Movement in special accounts (in millions of kwacha): 3,590; -1,698; ...; 1,892; 1,915; 2,515; 2,515; 1,091 - Cash payment of arrears (in millions of kwacha): 2,500; 0; ...; 3,689; 3,000; 4,384; 4,603; 4,822 - Adjusters and evaluation rules: - Targets are subject to adjusters for BOP support, maize revenue, and cash payment of arrears (footnotes in Table 1). - Evaluated on a continuous basis: ceilings on accumulation of external payments arrears and ceilings on new nonconcessional external debt (maturities one year or more and less than one year) are monitored continuously and are set at 0.0 in the table. - Adjustment clauses detailed in the Technical Memorandum of Understanding: - NFA floor adjusted by cumulative balance of payments support (downward adjustment capped at US$10 million). - NFA floor adjusted by cumulative debt service payments to the World Bank and the ADB measured from June 30, 2006. - NDA ceiling adjusted for balance of payments support (upward adjustment capped at US$10 million), liquidity reserve requirement changes, and debt service payments to the World Bank and ADB measured from June 30, 2006. - Ceiling on central government's domestic borrowing (CGDB) defined as cumulative flow from June 30, 2005 and adjusted for balance of payments support (upward adjustment capped at US$10 million) and securitization of pre-2005 domestic arrears. - Definitions and measurement conventions: - NFA valued in U.S. dollars; monetary gold valued at RBM fixed accounting rate. - Gross foreign assets defined per the International Reserve and Foreign Currency Liquidity Guidelines; specified inclusions and exclusions listed. - Gross foreign liabilities include outstanding liabilities of the RBM to the IMF and short-term foreign currency liabilities of the RBM with original maturity up to and including one year. - CGDB components enumerated: net borrowing from the RBM, commercial banks, nonbanks, and holdings of promissory notes; treasury bills and local registered stocks valued at cost. - Definitions of domestic arrears and June 2004 domestic arrears provided with exact payment-delinquency thresholds (30 days for wages, salaries, transfers, and goods and services; domestic interest payment due date). ### Structural performance criteria and benchmarks (selected items and dates) - Implement a centralized IFMIS mechanism for paying central government utility bills: End-March 2007 (listed as a performance criterion). - Structural benchmarks: - Eliminate import backlog of commercial bank foreign exchange applications for import-related payments: End-Jun. 2006 — Implemented with a delay. - Develop and implement new travel policy, including monitoring mechanisms: End-Sept 2006 — Implementation imminent. - Formulate an action plan to address weaknesses in PFM: End-Oct. 2006 — Implemented. - Compile quarterly financial reports for key public sector enterprises and publish audited annual financial statements: End-March 2007. - Compile monthly reports on payroll execution: End-March 2007. - Issue external debt management guidelines: End-June 2007. - Submit legislation to Cabinet governing the microfinance sector: End-June 2007. *Source: Excerpt from the IMF staff report and Technical Memorandum of Understanding for Malawi (June 2006–June 2007) contained in document _cr07147.* ### 18. Adjustment clause on CGDB—cash payment of arrears: The ceiling on CGDB ### 18. Adjustment clause on CGDB—cash payment of arrears: The ceiling on CGDB ### Adjustment clauses on CGDB (paragraphs 18–23) - Paragraph 18: The ceiling on CGDB will be adjusted downward by the full amount by which payments for verified pre-2005 domestic arrears are less than the program baseline. Only payments that are charged against the Accountant General vote, and reported by the Accountant General will be recognized as payments for pre-2005 domestic arrears. - Paragraph 19: The ceiling on CGDB will be adjusted upward (downward) by the full amount by which the cumulative receipts from the sale of commercial maize through ADMARC and deposited in the RBM maize account is less (greater) than the program baseline (see Table 2). - Paragraph 20: The ceiling on CGDB will be adjusted downward (upward) by the full amount by which the change (in kwacha) of the stock in the U.S. dollar denominated donor pool account for the health SWAp at the RBM is larger (smaller) than the change (in kwacha) of the stock in that account in the program baseline (Table 2). The change in stock is measured relative to the stock as of June 30, 2005. Stocks in the account are stated with a positive sign. - Paragraph 21: The ceiling on CGDB will be adjusted downward (upward) by the full amount by which the change (in kwacha) of the stock in the accounts of the NAC held in the Malawi banking system is larger (smaller) than the change (in kwacha) of the stock in those accounts in the program baseline (Table 2). The stock of the NAC accounts will be determined on the basis of the quarterly financial reports of the NAC. The change in stock is measured relative to the stock as of June 30, 2005. Stocks in the accounts are stated with a positive sign. - Paragraph 22: The ceiling on net CGDB will be adjusted downwards (upwards) by the full amount by which the full cumulative amount of debt relief provided by the IMF under the HIPC Initiative and the MDRI at the HIPC completion point and transferred by the RBM to the Government of Malawi exceeds (falls short of) the program baseline (Table 1). The cumulative amount will be measured from June 30, 2006. - Paragraph 23: The ceiling on net CGDB will be adjusted downwards (upwards) by the full cumulative amount by which debt service payments to the World Bank and the ADB falls short of (exceed) the program baseline (Table 1). The cumulative amount will be measured from June 30, 2006. ### Key operational principles for adjustments - Adjustments are full-amount (one-to-one) upward or downward changes to the CGDB ceiling based on variances from program baselines. - Measurement dates and bases explicitly specified: June 30, 2005 (stocks), June 30, 2006 (cumulative transfers and debt-service measurements). - Recognition rules for payments: only payments charged to specific government vote and reported by the Accountant General qualify (paragraph 18). ### Tables referenced - Adjustments reference Table 1 and Table 2 for program baselines and quantified comparisons (Table 1 for debt-relief and debt-service; Table 2 for maize receipts, donor pool, NAC accounts). --- ### D. Ceiling on Central Government Wages and Salaries (paragraphs 24–25) - Paragraph 24—Definition: Central government wages and salaries include all payments that are classified as personnel emoluments in government budgets and accounts, including payments on arrears of personnel emoluments and allowances. The ceiling is measured as a cumulative flow from June 30, 2005. - Paragraph 25—Adjustment clause: The ceiling on central government wages and salaries will be adjusted upward (downward) by the full amount of donor-funded supplementary wages and salaries for the health sector that is greater (less) than the program baseline (Table 2). --- ### E. Ceiling on External Payments Arrears (paragraph 26) - Definition: External payment arrears consist of external debt-service obligations (principal and interest) that have not been paid at the time they are due, as specified in the contractual agreements, except on external debt subject to rescheduling or restructuring. - Performance criterion: A continuous performance criterion applies on the nonaccumulation of external payment arrears on external debt contracted or guaranteed by the central government, the RBM, or other agencies on behalf of the central government or the RBM. --- ### F. Ceiling on Nonconcessional External Debt (paragraphs 27–30) - Paragraph 27—Definition of nonconcessional external debt: - Debt definition per Executive Board Decision No. 6230-(79/140) of August 3, 1979, as amended by Decisions No. 11096-(95/100), October 25, 1995; and 12274-(00/85) August 24, 2000. - For program purposes, short-, medium-, and long-term debt is nonconcessional if it includes a grant element less than 35 percent, as indicated in Decision No. 11248-(96/38), April 15, 1996. - Ceiling applies to contracting and guaranteeing by the central government, the RBM, or other agencies on behalf of the central government or the RBM on debt with nonresidents. - Ceiling applies to debt and commitments contracted or guaranteed for which value has not been received. - The ceiling is measured cumulatively from June 30, 2005. - Paragraph 28—Short-term debt: outstanding stock of debt with an original maturity of one year or less. - Paragraph 29—Medium- and long-term dent: outstanding stock of debt with a maturity of more than one year. - Paragraph 30—Exclusions from the limit: - Use of Fund resources. - Any kwacha-denominated treasury bill and local registered stock holdings by nonresidents. - Debts classified as international reserve liabilities of the RBM. - New debt issued to restructure, refinance, or repay existing debt up to the amount actually used for those purposes. - Normal import financing (a financing arrangement for imports is considered “normal” when the credit is self-liquidating). - Arrangements to pay over time obligations arising from judicial awards to external creditors. --- ### II. QUANTITATIVE INDICATIVE TARGETS ### A. Ceiling on Reserve Money (paragraph 31) - Definition: Reserve money is defined as the sum of currency issued by the RBM and balances of commercial bank accounts with the RBM. It includes required reserves held for kwacha deposits, other domestic currency liabilities, and other demand and time deposits held with the RBM. ### B. Ceiling on Central Government Discretionary Expenditures (paragraphs 32–33) - Paragraph 32—Definition: - Central government discretionary expenditures are all expenditures excluding (i) wages and salaries, (ii) interest payments, and (iii) foreign-financed development expenditures (development Part I expenditures) related to specific projects. - Include statutory (nonvoted) expenditures for pensions and gratuities, compensation and refunds; but exclude tax refunds (treated as negative revenue). - Include other recurrent expenditures (ORT), domestically financed development expenditures (development Part II), and net lending (if any). - Include recurrent and development Part II expenditures financed by donors (e.g., maize purchases for the Strategic Grain Reserve, purchases financed from the Japan debt relief account, and expenditures in the health sector financed from the donor pool account in the RBM for the health SWAp). - The ceiling is measured as a cumulative flow from June 30, 2005. - Paragraph 33—Adjustment clause for donor-funded health sector discretionary expenditures: - The ceiling will be adjusted upward (downward) by the full amount of donor-funded central government discretionary health sector expenditures that is greater (less) than the program baseline (Table 2). - For resources via the U.S. dollar-denominated donor pool account for the health SWAp at the RBM, donor-funded central government discretionary expenditures in the health sector will be deemed to have been made according to the calculation: "outflows from the donor pool account to finance expenditures, expressed in Malawi kwacha" less "donor financed supplementary wages in the health sector". --- ### III. STRUCTURAL PRIOR ACTIONS, PERFORMANCE CRITERIA AND BENCHMARKS ### Measures agreed before the Third Review (paragraphs 34–35) - Paragraph 34—Travel Policy: The Ministry of Finance will develop and implement (by issuing a circular) a travel policy that will aim to ensure accountability and control for all expenditure on travel. - Paragraph 35—PFM action plan: The Ministry of Finance will develop an action plan that prioritizes reforms, describes existing donor support, and identifies remaining areas of need for technical assistance in the area of public financial management. ### Measures agreed during the Third Review (paragraphs 36–40) - Paragraph 36—Payroll: The Ministry of Finance will produce monthly reports on the execution of the payroll. Reports will include establishment, total number of employees, entries, exits, and promotions for the central government. The report will be produced within two weeks of the end of the month. - Paragraph 37—IFMIS: The Ministry of Finance will develop a mechanism within IFMIS for monthly payment of utility bills of all central government entities (water, electricity, telephones). The mechanism will be managed by the accountant general. Implementation will be assessed by the delivery of centralized IFMIS payment receipts. - Paragraph 38—Public Sector Enterprises: The Ministry of Finance will compile quarterly financial reports of key public sector enterprises and will publish their audited annual financial statements. Public enterprises covered include ESCOM, the five Water Boards, ADMARC, Air Malawi, the Malawi Postal Corporation, and the Malawi Housing Corporation. - Paragraph 39—Microfinance sector: The government will submit legislation to Cabinet governing the microfinance sector in Malawi. The legislation will establish capital requirements, a regulatory framework for accepting deposits and making loans, reporting requirements to the RBM, and prudential norms for operation. - Paragraph 40—External debt management guidelines: The Ministry of Finance will develop and issue external debt management guidelines for the public sector. The document will provide guidance on concessionality thresholds, levels of new borrowing, procedures for contracting loans, responsibilities for assessing loan terms and concessionality, and responsibilities of the Ministry of Economic Planning and Development in conjunction with the Ministry of Finance for evaluating project costs and benefits. --- ### IV. REPORTING OF CERTAIN TRANSACTIONS IN THE FISCAL ACCOUNTS ### Operations of the National Aids Commission (NAC) (paragraph 41) - Financial operations of the NAC are included in the fiscal accounts according to the NAC’s financial reports. - Expenditures are typically classified as development Part I expenditures. - Government ministries and departments executing projects financed by NAC report these activities to NAC for inclusion in NAC’s financial reports. ### Donor pool funded expenditures in support of the Health SWAp (paragraph 42) - The Health SWAp uses a U.S. dollar-denominated donor pool account at the RBM to hold donor pool resources until expenditures need to be financed. - Donor-funded expenditures for the Health SWAp from pooled resources will be deemed to have been made in the amount of outflows from the donor pool account to finance expenditures (typically either to Malawi government No. 1 account in Malawi kwacha, or to pay directly for imports by the health sector). - Attribution of donor-financed expenditures to personnel emoluments, other recurrent transactions, and development Part II expenditures is made on the basis of cash flow projections and established donor commitments (e.g., supplementary wages and salaries for professional health cadres). - Typically, expenditures for other recurrent transactions are estimated as the residual of outflows less expenditures for wages and salaries less expenditures for development Part II. *Source: _cr07147 - 18. Adjustment clause on CGDB—cash payment of arrears: The ceiling on CGDB* ### 43. Monitoring of the program requires that the information listed in the tables shown ### _cr07147 - 43. Monitoring of the program requires that the information listed in the tables shown ### Monitoring requirements and new data item - Monitoring of the program requires that the information listed in the tables shown be reported to the IMF within the timeframe indicated in the table. - New data requirement: a list of the backlog of import applications for foreign exchange to include data by bank, and amounts separated by the following three categories: - imports not yet delivered, - imports delivered but within the grace period, - imports delivered but outside of the grace period. ### Reporting requirements (selected entries from the reporting table) - Frequency and delivery modes use the table's codes (D-Daily, W-Weekly, M-Monthly, Q-Quarterly, BA-Bi-annual, A-Annual; F-Friday, 30-Every 30th, T30-Every third 30th; E-Electronic, H-Hard copy). - Selected data items to be reported (data description — reporting frequency — delivery agency — delivery lag — delivery mode as shown in the table): - Gross international reserves, exchange rate, and foreign exchange purchases and sales — D — RBM — W2 — F E - Reserve money, OMO transactions, and RBM conversion of treasury bills — D — RBM — W2 — F E - Treasury bill and RBM bill auction results — W — RBM — W2 — F E - RBM balance sheet and broad money estimate — W — RBM — M7 — F E - Backlog of import applications for foreign exchange — W — RBM — M7 — F E - Four-bank monetary survey — M — RBM — M30 — T30 E - International Reserve and Foreign Currency Liquidity Data Template — M — RBM — M30 — T30 E - Central government domestic borrowing — M — MOF — M30 — T30 E - Interest rates — M — RBM — M30 — T30 E - Fiscal table (GFS) including revenue, expenditure, and financing — M — MOF — M30 — T30 E - Ministry reports on commitment and expenditures (CCS3 and CCS4 returns) — Q — MOF — Q30 — T30 E - New external loans contracted or guaranteed by the central government — Q — MOF — Q30 — T30 E - List of nonreschedulable external arrears by creditor — Q — MOF — Q30 — T30 E (to be reported by DAMD, including a detailed explanation) - Quarterly financial statements of the ten major parastatals and MSB — Q — MOF — Q45 — T15 H - Annual audited financial statements of the ten major parastatals and MSB — A — MOF — A90 — Mar. 30 H - Consumer price index and monthly statistical bulletin — M — NSO — M30 — T30 E - Balance of payments, and quarterly statistical bulletin — Q — NSO — Q45 — T15 E - National accounts, balance of payments, and quarterly statistical bulletin — A — NSO — BA45 — Mar. 15; Sep. 15 E - Notes: - 2/ To be reported by DAMD, including a detailed explanation. - 3/ Ten major parastatals listed in the table footnote. - 1/ Detailed information on amounts, currencies, terms, and conditions, including debt contracted or guaranteed by the RBM or any other agency on behalf of the central government. ### Program balance of payments support and debt service (high-level figures) - Table title: Malawi: Program Balance of Payments Support and Debt Service Obligations, FY2005/06 and FY2006/07 (Millions of U.S. dollars). - Selected program support and cumulative totals (as presented in the table): - Total (by quarter snapshot sequence in table): 60.2; 35.7; 45.0; 52.7; 28.0; 3.0; 28.1; 43.5; 21.2; 4.7; 8.4; 41.5; 15.0; 20.0 - Cumulative total (sequence shown in table): 60.2; 35.7; 105.2; 88.4; 116.4; 91.4; 144.5; 134.9; 159.0; 139.6; 167.4; 181.1; 196.1; 216.1 - Debt service payments (selected lines in table): - Total (sequence shown): 7.0; 10.3; 0.4; 0.4; 0.3; 0.4 - Cumulative (sequence shown): 7.0; 10.3; 7.4; 10.8; 11.0; 11.5 - Pass-through of debt relief from the RBM to the GoM (IMF line; sequence shown): 4.5; 44.7; 8.7; 2.7; 4.7; 7.8 - Cumulative (sequence shown): 4.5; 44.7; 13.2; 47.4; 52.1; 59.9 - Sources cited in the table: IMF, UK, EU, Norway, AfDB, and WB. ### Maize revenue, Health SWAp, and NAC funds (selected figures and balances) - Table title: Malawi: Program Maize revenue, Health SWAp, and NAC Funds, FY2005/06 and FY2006/07 (Millions of Malawi Kwacha). - Maize revenue — Quarterly receipts and cumulative receipts (selected sequence): - Quarterly receipts (sequence shown): 170; 300; 334; 454; 391; 298; 0; 124; 40; 0; 320; 0; 0; 0 - Cumulative receipts (sequence shown): 170; 300; 504; 753; 1,157; 1,051; 1,157; 1,175; 1,091; 1,175; 1,411; 1,175; 1,175; 1,175 - Health SWAp — RBM accounts (selected lines): - Revenues (sequence shown): 754; 1,488; 1,840; 584; 883; 2,102; 2,159; 2,067; 2,163; 819; 928; 1,863; 1,970; 2,045 - Expenditures (sequence shown): 1,193; 1,556; 1,227; 0; 1,164; 952; 1,882; 2,883; 0; 1,732; 2,923; 1,240; 1,970; 2,254 - Change in account balance (sequence shown): -439; -67; 613; 584; -281; 1,150; 277; -816; 2,163; -912; -1,995; 623; 0; -209 - Cumulative receipts and expenditures sequences are shown in the table (selected cumulative values include: cumulative receipts 754; 1,488; 2,594; 2,073; 2,980; 4,175; 5,139; 6,242; 7,955; 7,062; 8,883; 8,925; 10,895; 12,939; cumulative expenditures 1,193; 1,556; 2,420; 1,556; 2,721; 2,507; 4,603; 5,390; 5,457; 7,122; 8,379; 8,362; 10,332; 12,586) - Inflows to RBM (US$ millions) (sequence shown): 5.9; 12.1; 14.1; 4.7; 6.6; 16.2; 15.8; 15.0; 10.4; 5.9; 20.6; 13.4; 13.9; 14.2 - Cumulative inflows (sequence shown): 5.9; 12.1; 20.0; 16.8; 23.6; 33.0; 39.4; 48.0; 49.8; 53.9; 70.4; 67.3; 81.2; 95.4 - National AIDS Commission (NAC) — selected sequences: - NAC revenues (sequence shown): 1,269; 455; 1,309; 1,928; 1,340; 264; 1,364; 508; 1,413; 1,745; 1,445; 3,475; 1,027; 20 - NAC expenditures (sequence shown): 1,269; 768; 1,309; 1,706; 1,340; 506; 996; 614; 1,413; 530; 1,445; 3,475; 1,027; 1,235 - Change in account balance (sequence shown): 0; -313; 0; 222; 0; -241; 368; -106; 0; 1,215; 0; 0; 0; -1,215 - Inflows to RBM (US$ millions) (sequence shown): 10.0; 2.6; 10.0; 2.1; 10.0; 0.2; 10.0; 0.2; 10.0; 10.7; 10.7; 14.4; 7.0; 0.0 - Cumulative inflows (sequence shown): 10.0; 2.6; 20.0; 4.6; 14.6; 4.8; 24.6; 5.0; 34.6; 15.7; 45.3; 30.1; 37.1; 37.1 ### PRGF arrangement, recent program status, and key policy issues - PRGF arrangement approved: 8/5/2005 (Country Report 05/285); amount SDR 38.2 million (55 percent of quota). - Disbursements to date: SDR 15.3 million has been disbursed. - Authorities request: waiver for nonobservance of the performance criterion on government domestic borrowing. - Authorities requesting the fourth disbursement under the current PRGF arrangement: SDR 6.68 million. - The authorities’ program for the second half of 2006/07 (July–June) is outlined in the attached Supplement to the Memorandum of Economic and Financial Policies (MEFP). - Key policy issues highlighted: - Medium-term challenges: enhance growth and improve economic management capacity. - Importance of strengthening capacity to manage a possible scaling-up of aid. - Short-term imperative: manage expectations about how much the budget can deliver in the wake of debt relief delivery. ### IMF-Malawi institutional and statistical points (selected facts) - Discussions for Article IV Consultations and the third review of the PRGF: held in Lilongwe October 24–November 7, 2006. Staff met with President Bingu wa Mutharika, Minister of Finance Goodall Gondwe, Governor of the Reserve Bank of Malawi Victor Mbewe, donors, private sector, and civil society. - Staff team composition: Mr. McDonald (head), Mr. Staines, Ms. Teferra (all AFR), Mr. Dalsgaard (FAD), Mr. Tolosa (PDR), Mr. Baunsgaard (resident representative). - Membership status: Joined 07/19/1965; Article VIII (December 7, 1995). - Quota and holdings (SDR million and percent quota/percent allocation as shown): - Quota: 69.40 — 100.0 - Fund holdings of currency: 67.11 — 96.70 - Reserve position in Fund: 2.31 — 3.34 - Net cumulative SDR allocation: 10.98 — 100.0 - SDR holdings: 0.52 — 4.76 - Outstanding PRGF arrangements: SDR 23.18 million — 33.40 percent of quota. - Financial arrangements table (selected row): - PRGF — Approval 8/5/2005 — Expiration 8/4/2008 — Amount Approved SDR 38.17 — Amount Drawn SDR 15.27 - Projected obligations to Fund (millions of SDRs; based on existing use of resources and present SDR holdings) — sequence headings and some aggregated lines appear in the table (Principal, Charges/Interest, Total across 2006–2010). - HIPC and MDRI implementation (selected figures): - Enhanced Framework decision point date: 12/21/00. - Assistance committed (NPV terms): Total assistance (US$ million) 646.00; Fund assistance (SDR million) 23.30. - Completion point date: 8/31/06. - Delivery of Fund assistance (SDR million): Amount disbursed 23.30; Interim assistance 11.57; Completion point 11.73; Additional disbursement of interest income 3.65; Total disbursements 26.95. - MDRI-eligible debt (SDR Million) 29.96; Financed by MDRI Trust 14.53; Remaining HIPC resources 15.43. - Debt Relief by Facility (SDR Million) — Delivery Date September 2006 — GRA 10.84; PRGF 19.12; Total 29.96. - Safeguards assessment (RBM, January 2006): identified emerging vulnerabilities in governance and financial reporting; recommendations included reconstitution of RBM board of directors, reestablishment of an audit committee, expanded explanatory notes in financial statements to include advances to the government and letter of credit financial commitments, and strengthening central bank law provisions on appointment and dismissal of board members. - Exchange arrangement: managed-float. Exchange rate on December 18, 2006: MK 138.61 = US$1.00. - Article IV consultation cycle: standard 12-month; last Article IV consultation concluded on October 18, 2004 (SM/04/355). - Resident Representative: Mr. Thomas Baunsgaard since August 16, 2004. *Prepared by the African Department (in consultation with other departments); Approved by Robert Corker and Michael Hadjimichael — February 2, 2007.* ### 3. A new CAS will be presented to the Board on February 16, 2007 and outlines a ### _cr07147 - 3. A new CAS will be presented to the Board on February 16, 2007 and outlines a ### A. Overview of World Bank Engagement and Proposed CAS - A new CAS will be presented to the Board on February 16, 2007 and outlines a program of Assistance covering FY07-10 in support of implementation of the Malawi Growth and Development Strategy (MGDS). - Bank assistance focused on identified MGDS priorities of agriculture and food security, infrastructure development, combating HIV/AIDS, and governance and public sector management. - Global Development and Learning Network Project was cancelled in November 2005 per the Government’s request. - The Fiscal Management and Accelerating Growth Project was closed on June 30, 2006. ### B. Financial Relations with the World Bank Group - Total lending and grants to Malawi from the World Bank as of January 2007 is US$2,720 million, of which US$2,525 million has been disbursed. - As of December 2007, there were 10 active projects in Malawi with a net commitment of US$322 million and an undisbursed balance of US$170 million. - Sectoral breakdown: - Social Sectors: 48% - Agriculture: 22 percent - Energy, Infrastructure, and Private Sector Transport: 22 percent - Macro and multi-sectoral activities: 8% - IFC portfolio: - One company: National Insurance Company (NICO) for US$0.523 million in equity. - Future focus: expanded IFC assistance for the private sector, especially manufacturing, mining, and tourism. ### C. Areas in Which the Bank Leads Education and Health - Multi-Sectoral AIDS Project - US$35 million in grants. - Approved in FY04. - Scheduled to begin in 2004 and run through 2008. - Activities: capacity building in public, private, and civil society organizations; prevention education; increased support for AIDS orphans. - Health Sector Support Project - Approved in December 2004. - US$15 million in grants, plus supplementary Malaria Booster project of US$5 million approved in July 2006. - Three components: - Component 1: Increase access to quality essential health services via the Essential Health Package (EHP), targeting poorest and most vulnerable populations. - Component 2: Increase the number of staff via a six-year emergency training plan, recruitment campaign, financing and filling of vacancies, volunteers and contractual staff, and stop-gap strategies. - Component 3: Improve effectiveness and efficiency of the health system and referral network to support EHP delivery. - Supplementary Malaria Booster: focus on monitoring and evaluation. - Education Sector Support Project - US$32.2 million in grants. - Approved in May 2005. - Six components: - Component 1: Improve quality and expand teacher development and training. - Component 2: Improve conditions of learning at selected secondary schools. - Component 3: School Health and Nutrition package for primary schools: distribution of vitamin A and iron-folic acid to school children under 10-years-old, de-worming, treatment of malaria and fever, and promotion of good health and nutrition practices. - Component 4: Supply basic learning materials and strengthen community participation in school management. - Component 5: Capacity Building and Policy Development: (i) national education policy consolidation and capacity building; (ii) support for decentralization policy in education. - Component 6: Support physical implementation and management of fiduciary and procurement issues. Social Protection and Community Development - Malawi Social Action Fund (MASAF) - MASAF III: US$60 million, of which US$27 million is in the form of an IDA grant. - Approved in FY03. - Objectives: decentralization and community capacity building; empower individuals, households, communities; support for critically vulnerable populations; development of social safety nets (e.g., skills training for AIDS orphans); facilitate delivery of social services; promote community saving and investment. Infrastructure - Integrated Infrastructure Services Project - Primarily supports rural energy and transport needs. - Approved on June 27, 2006. - Pipeline: Water (FY07) and Infrastructure (FY08) projects. - Road Maintenance Project - US$30 million. - Approved in FY99 and closed on June 2006. Private Sector - Privatization and Utility Reform Project (PURP) - US$28.9 million. - Approved in FY00. - Aims: improve quality of and access to telecommunications, water, and power by promoting private-sector involvement. - PURP was restructured to address slow implementation, respond to new government challenges, incorporate lessons learned, and improve effectiveness. - Regional Trade Facilitation Project - Objectives: contribute to poverty alleviation through private-sector-led growth by improving access to financing for productive transactions and cross-border trade; set up a credible insurance mechanism against political risk to extend maturities and widen scope for private sector activity; create consistent and predictable coverage and lower risk premia. Agriculture - Community-Based Rural Land Development Project - US$27 million. - Approved April 2004. - Based on MASAF community experience; will acquire idle land and transfer it to small farmers to improve food security and foster surpluses for sale. - Notes urgency of more equitable land distribution to provide food security for small farmers. - Structural Adjustment Credit, FIMAG, also supported agricultural policy reforms. - Irrigation, Rural Livelihoods, and Agriculture project - US$40 million. - Approved November 2005. - Objective: raise agricultural productivity and net incomes of poor rural households in target districts via an integrated package including irrigation, advisory services, marketing and post-harvest assets and services, and capacity building. Environment - Mulanje Mountain Biodiversity Conservation Project - US$7 million. - Approved in FY01. - Objectives: raise awareness about conservation needs; strengthen capacity of the Forest Department and local communities; encourage community participation in managing the forest reserve. - MASAF framework: promotes environmentally sound community development initiatives and funds community resource management projects. Poverty Monitoring - Support to PRSP monitoring tasks via PRSP Trust Fund. - Assistance to National Statistical Office for Second Integrated Household Survey: design, collection, processing, and dissemination covering household and community-level indicators. - Poverty and Vulnerability Assessment prepared in 2006 jointly by the Ministry of Economic Planning and Development, the National Statistical Office, and the World Bank. ### D. Areas in Which the Bank and the Fund Share the Lead Poverty Reduction Strategy - First PRSP finalized in April 2002. - Comprehensive review of initial three years carried out in 2006. - Second PRSP ("Malawi Growth and Development Strategy") prepared in Fall 2006. - Joint IDA-IMF staff assessment presented to the Boards of the IMF and the Bank in January 2007; Boards have subsequently endorsed the strategy. - IMF and Bank staffs collaborated in supporting the government. Debt Sustainability and Enhanced HIPC Initiative - "Malawi: Completion Point Document for the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative" prepared and presented to the Boards in August 2006. - Malawi’s debt sustainability outlook after HIPC assistance deteriorated substantially since the decision point due to exogenous factors. - Boards approved topping-up assistance at the completion point consistent with enhanced HIPC Initiative guidelines. - Upon approval of the completion point, Malawi qualified for additional debt relief from IDA, the IMF and the AfDF under the MDRI. Budgetary Planning, Revenue Administration, and Public Expenditure Reforms - Fiscal Management and Accelerating Growth (FIMAG) - US$50 million. - Closed in June 2006. - Focus areas: (i) strengthening public expenditure management, (ii) privatizing state-owned enterprises, (iii) supporting small-holder agriculture and land reform, and (iv) addressing HIV/AIDS. - Financial Management, Transparency, and Accountability Project (FIMTAP) - US$24 million. - FY03. - Objective: improve civil service and public expenditure management for better allocation and utilization of public resources. Civil Service and Wage Reform - Government began implementing World Bank–financed study recommendations at end of 2004: streamline allowances, consolidate allowances in the base for personal income tax, rationalize salary grades, and move towards a unified salary structure. - Reforms supported under the IMF Staff Monitored Program. Emergency Assistance - Emergency Recovery Project - Approved September 2005 and closed December 2006. - Supported restoration of assets and production following the drought-induced emergency in early 2005. - Emergency grant provided funds to allow critical private sector imports supporting restoration of assets, investment, and production with minimal disruption. ### E. Areas in Which the Fund Leads Macroeconomic Stability, Fiscal Policy, and Monetary Policy - Key macroeconomic challenges: history of repeated fiscal slippages and unpredictable monetary policies, rapidly rising level of domestic debt, and persistently high level of real interest rates. - The Fund will work with the authorities through financial support and technical assistance to address these challenges. ### F. Statistical Issues and Real Sector Statistics - Economic statistics show serious deficiencies affecting program monitoring. - Data ROSC (published February 17, 2005) found: legal and institutional framework broadly adequate, but shortcomings in scope, accuracy, and reliability of data; scope to strengthen the Statistics Act. - Need to formally assign responsibility: government finance statistics to the Ministry of Finance; monetary statistics to the Reserve Bank of Malawi. - Authorities participating in the GDDS to improve quality and timeliness of economic and financial data. - Malawi’s metadata posted on the Fund’s DSBB since December 2002. - Metadata updates: - Fiscal sector and socio-demographic data for health and education: updated March 2004. - Metadata for other sectors: updated February 2005. *Source: _cr07147 - 3. A new CAS will be presented to the Board on February 16, 2007 and outlines a (PDF).* ### 2. Real sector statistics covering the national accounts, prices, and trade statistics need ### _cr07147 - 2. Real sector statistics covering the national accounts, prices, and trade statistics need ### Real sector statistics — overview and main findings - Real sector statistics covering the national accounts, prices, and trade statistics need substantial improvements. - Only a limited set of source data is available; quality and timeliness should be improved. - The National Statistics Office (NSO) needs additional resources to meet the required quality standard of national accounts. - A long-term technical assistance program (2004-07) on national accounts is being provided under a project by Statistics Norway. ### National accounts — findings and deficiencies - The NSO is responsible for compiling the national accounts data; final estimates are comprehensive (see footnote 4) but source data underpinning these estimates are inadequate. - Key source-data gaps: - Coverage gaps, especially for medium- and small-scale establishments and informal sector activities. - Relevant surveys and financial statements are not used to prepare estimates of changes in inventories and household final consumption expenditures. - Statistical-process weaknesses: - Statistical techniques for compilation are deficient. - Processes to assess and validate source, intermediate, and final data are generally limited. - The framework in use is largely based on the 1968 System of National Accounts (SNA) and needs updating to the 1993 SNA. - Price- and index-related issues: - Constant price estimates are mainly derived using an index of industrial production (IIP) with 1984 weights, based on production data of 50 large-scale firms, and the consumer price index (CPI). - There is a recognized need to update the weights of the IIP and to develop a producer price index to improve the constant price series. - Publication and timeliness: - The national accounts are published in Malawi’s Statistical Yearbook and Quarterly Statistical Bulletin with a significant lag. ### Prices — CPI assessment - A consumer price index (CPI) is available on a timely basis. - CPI construction details: - The CPI is based on the 1997/98 household survey. - Data are collected on a monthly basis by regional price collectors. - Suggested improvements: - Use the geometric mean as the elementary aggregate index formula. - Apply systematic, comprehensive, and consistent approaches to the quality adjustment of product prices. ### Trade statistics — findings - Preliminary estimates of trade are available with a lag of two to three months. - Trade data reception: - Trade data are received electronically from six major ports. - Methodological issues: - The adjustment of imports from c.i.f. to f.o.b. prices is not appropriate. - There is no reconciliation with neighboring countries. ### Government Finance Statistics — findings and data quality issues - Malawi reports some fiscal data on a cash basis to AFR; administrative records are kept on a manual basis and systems are designed to provide adequate information, but serious quality problems and data inconsistencies complicate program monitoring. - Specific problems identified: - Tax revenue data are received in a timely fashion, but reconciliation with deposits in the Malawi Government (MG) Account No. 1 is not always possible. - Nontax revenue collected by line ministries is not properly accounted for in fiscal reports prepared by the Ministry of Finance; it also includes capital revenue. - Recurrent expenditure data suffer from shortcomings partly related to insufficient bank reconciliation at line ministry level (between spending records and financing information). - Fiscal reports prepared by the Ministry of Finance show spending based on funding data (from the Credit Ceiling Authority); line ministries submit spending reports based on recorded expenditure — sizable discrepancies can occur for wages and other recurrent transactions, reflecting reallocations across budget lines. - Domestically-financed development expenditure is based on funding released to line ministries; externally-funded expenditure data are based on reported project grants and loans — differences in timing and financing modalities cause substantial discrepancies between expenditure flows and corresponding financing data, producing substantial errors in reporting capital spending. - Many donor projects are still not incorporated in the budget, so corresponding expenditure is not captured. - Some externally funded development expenditures are likely recurrent, so reported capital expenditure could be overstated. - Data on expenditure arrears are likely incomplete; reporting from the Commitment Control System appears partial and ministry-level data are inconsistent from report to report. Previously unknown arrears have been cleared through the “special activities” vote. - Budget classification and chart of accounts: an output-oriented activities-based budget classification (ABB) is used for budget presentation and identifies pro-poor expenditures protected under the PRSP, but no bridge table maps ABB into the program classification used for expenditure reporting and accounting, so pro-poor expenditures cannot be monitored. - Financing estimates are based on monetary and debt data rather than government records of financing. Reporting on treasury bills directly issued to the RBM at times has been slow. - Technical assistance and implementation: - Authorities have received significant technical assistance from the Fund and other donors to strengthen expenditure monitoring/reporting, accounting, and statistical reporting, but results have lagged. - Government pledged to strengthen public financial management and fiscal reporting; renewed efforts are being made to establish a work plan and effectively utilize donor technical assistance. - Reporting to IMF publications: - Malawi does not report government finance data for inclusion in the Government Finance Statistics Yearbook (GFSY) or the International Financial Statistics (IFS). - A STA mission visited Lilongwe in August 2005 to review progress and reiterated the importance of implementing an Integrated Financial Management Information System (IFMIS), improving coverage and sectorization of government financial operations, and correctly classifying transactions according to international guidelines. - The mission assisted with compilation of annual fiscal data for 2003/04 in accordance with the GFSY Questionnaire, but such data were not reported for inclusion in the publication. - The mission proposed and discussed a migration plan and timetable to adopt the GFSM 2001 methodology. ### Monetary and Financial Statistics (MFS) — status and issues - The Reserve Bank of Malawi (RBM) reports monetary and financial statistics (MFS) to STA on a regular basis; the latest data available are for September 2006. - Progress and remaining recommendations: - The MFS mission in April-May 2004 noted significant progress since the August-September 2002 mission, including improved coverage of the monthly monetary survey that now accounts for more than 90 percent of the banking sector. - Remaining recommendations not yet implemented include sectorization of the domestic economy and classification of financial instruments to fully adhere to the Monetary and Financial Statistics Manual methodology. - Data initiatives: - The mission completed development of an integrated database for RBM, STA, and AFR publication and operational needs. - Standardized forms (SRF) for reporting monetary data to STA are being adopted; authorities submitted SRF test data, but progress stalled after STA provided comments in October 2005. ### External sector statistics — balance of payments (BOP) - Concepts and definitions used to compile balance of payments statistics are in broad conformity with the fourth edition of the Balance of Payments Manual (BPM4). - Transition progress: - The NSO has made progress in transition to BPM5 methodology. - The most recent data reported to STA for publication in the Balance of Payments Statistics Yearbook pertain to 2002; authorities advised updated information will be provided following implementation of several methodological and data-source improvements. - Data reliance and sources: - Following liberalization of exchange controls, compilation relies on surveys as source information for major BOP components such as services, direct investment flows, and other financial transactions of the private sector. - Primary sources (surveys and/or International Transaction Reporting System reports) are supplemented with secondary sources: foreign trade statistics collected by the MRA through customs declarations, debt statistics from the MOF, net foreign assets from the RBM, and information on grants collected from main donors. ### Selected data-timeliness and data-quality observations (as reported) - Latest observation / date received entries (examples from the memo table): - Exchange Rates: 30/09/06 (Date received 30/09/06) - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 09/06 (Date received 10/31/06) - Reserve/Base Money: 09/06 (Date received 11/06/06) - Broad Money: 09/06 (Date received 11/08/06) - Central Bank Balance Sheet: 09/06 (Date received 11/06/06) - Consolidated Balance Sheet of the Banking System: 09/06 (Date received 11/08/06) - Interest Rates: 09/06 (Date received 11/01/06) - Consumer Price Index: 8/06 (Date received 07/06) - Revenue, Expenditure, Balance and Composition of Financing — Central Government: 11/05 (Date received 12/05) - External Current Account Balance: 11/04 (Date received 04/05) - Exports and Imports of Goods and Services: 2005 (Date received 6/06) - GDP/GNP: 2005 (Date received 6/06) - Gross External Debt: 12/03 (Date received 07/04) ### Recent developments and macro context (staff statement excerpts) - Supplementary budget submitted on February 19 increases spending by about MK6 billion beyond the expansion already proposed under the revised program; additional spending is roughly equally distributed across foreign-financed development spending, the fertilizer subsidy program, and generic goods and services (including increased health spending, utilities, and rents). - As a result, the government will miss the end-June 2007 spending target under the proposed revised program in the staff report, though the supplementary budget is described as consistent with the revised program in other respects and fully financed by higher foreign project financing, increased tax revenue projections, a revision to the fuel pricing formula implemented in February 2007, receipts from the sale of excess fertilizer to a commercial bank under a repurchase agreement, and savings from postponing local elections. - The Reserve Bank of Malawi reduced the liquidity reserve requirement in February 2007; to constrain monetary growth and ward off inflationary pressures, the RBM agreed to mop up excess liquidity caused by this measure. - Macroeconomic outlook highlights: - First round crop estimates suggest another bumper harvest in 2007 that may warrant an upward revision to output growth projections. - 12-month inflation fell below 10 percent in January 2007, benefiting from the bumper harvest of 2006, exchange rate stability, and moderation in international oil prices. *Source: _cr07147 - 2. Real sector statistics covering the national accounts, prices, and trade statistics need (IMF staff report content as provided).* ### 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments. ### Statement by Peter Gakunu, Executive Director for Malawi and Joseph L. Masawe, Senior Advisor to Executive Director — March 14, 2007 ### Opening remarks - "0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments." - On behalf of the Malawian authorities, the delegation welcomes the Board’s discussion on the 2006 Article IV review of Malawi and the third review of Malawi’s three year PRGF arrangement with the Fund. - Authorities appreciate the Executive Board’s recognition of their commitment to prudent macroeconomic policies and good performance under the PRGF arrangement, and express gratitude for IMF approval of debt relief under the HIPC and Multilateral Debt Relief Initiatives. - Request: completion of the third review of the PRGF-supported program and a waiver of non-observance of a performance criterion related to central government borrowing for end June 2006. ### Recent economic developments - Policy focus over past three years: restoring macroeconomic stability, strengthening public financial management, improving food security, restructuring public sector enterprises. - Real GDP growth: - four year average between 1999/2000 and 2003/04: 1.4 percent - average between 2004/05 and 2005/06: 4.4 percent - growth during 2005/06: 5.3 percent - Inflation: - end of period inflation declined from 18.1 percent to 15.5 percent over the indicated period - during 2005/06 inflation remained high at around 15 percent - Fiscal performance 2005/06: - overall satisfactory, but the performance criterion on government domestic borrowing was not achieved due to unanticipated food security spending and accelerated payments to clear domestic arrears - despite higher than projected borrowing, domestic debt still fell below 20 percent as projected under the program - Exchange rate and external flows: - the Kwacha depreciated by 12 percent during the second half of 2005/06 - depreciation helped clear the backlog of import payments by end of July 2006; clearance had been programmed for end June 2006 but was delayed due to lower than projected foreign exchange inflows from disruptions in tobacco exports - Monetary developments: - RBM reduced the liquidity ratio in February 2006 to reduce cost of borrowing and stimulate private sector credit - results: lower yields on treasury bills, deposit rates edged upwards, reduced spread between lending and deposit rates - temporary liquidity pressure led RBM to step up liquidity mop-up operations; year closed with a slight monetary overhang but broad money growth remained within programmed levels ### Medium-term challenges and objectives - Authorities acknowledge remaining medium-term challenges and have included initiatives in the PRGF-supported program to: - remove impediments to private sector growth - deepen financial intermediation - improve efficiency of public service delivery - Near-term output growth expectation: 5.5 percent, driven mainly by a rise in gross investment ### Fiscal policy (2006/07) - Government will continue to implement the budget approved by parliament in August 2006. - By end of the first quarter, domestic revenue collection was higher than projected; expenditures were within programmed levels. - A larger supplemental budget was drafted to invest an anticipated revenue surplus; a revised supplemental budget has been submitted and is being discussed in parliament. - Medium-term objective: reduce domestic debt to around 10 percent of GDP to free resources for the private sector and provide more fiscal space for poverty-related spending. - Commitment to ensure savings and additional resources from Paris Club 100 percent debt cancellation and MDRI relief are incorporated in the budget for pro-poor spending. - Action plan to strengthen public financial management, including phasing in IFMIS and issuing guidelines for new borrowing that emphasize concessional and sustainable borrowing. ### Monetary policy (2006/07) - RBM to continue prudent monetary policy aimed at reducing inflation. - Impact of liquidity ratio lowering: positive results in cost of borrowing and increased credit to the private sector. - Overall annual rate of inflation: 11.6 percent in September 2006. - Authorities expect declining inflation to provide scope for interest rate reductions and higher returns on investment. - Commitment to a flexible exchange rate regime consistent with the monetary policy framework and building reserves. - Recognition of vulnerability to external shocks, especially unreliable weather; plan to strengthen external reserves. ### Structural measures - Continued implementation of measures to promote growth as set out in the Malawi Growth and Development Strategy (MGDS). - Near-term actions: - finalize a Private Sector Development Program - reduce administrative costs of dealing with public institutions to lower the cost of doing business - restructure the Agricultural Development and Marketing Corporation (ADMARC) to be more efficient and financially sound - finalized the Land Reform Bill to facilitate enhanced credit growth to the private sector - Financial sector deepening: - complete a comprehensive strategy to strengthen financial intermediation through improved supervisory capacity, enhanced creditor rights, and development of a creditor information system - initiate revision of the RBM Act in line with the SADC initiative to provide more independence and accountability - step up development of microfinance institutions to expand credit to the rural poor - Public sector efficiency: - step up measures to improve efficiency and financial viability of public institutions, including introducing more accountability - Statistics: - continue measures to strengthen Malawi’s statistical base - reviewing national accounts and balance of payments statistics with IMF assistance - intend to strengthen compilation of consumer price index *Statement by Peter Gakunu, Executive Director for Malawi and Joseph L. Masawe, Senior Advisor to Executive Director, March 14, 2007. Download Date: 3/20/2007 - 12:36 PM. Current Classification: Available to the Public.* ### Conclusion ### Conclusion ### Program implementation and macroeconomic performance - Authorities remain committed to measures agreed with the Fund under the PRGF supported economic program. - During the review period the implementation of the program has been in line with the objectives and targets, despite that the economy remains vulnerable to exogenous shocks. - GDP has remained fairly impressive and inflation has continued to decline. - The government requests the completion of the third review under PRGF arrangement on the basis of the good performance during the period under review and the strong measures to be implemented during the remaining period of the fiscal year. ### Policy priorities and planned measures - Reducing poverty is the major objective of government’s medium term policy, requiring maintenance of macroeconomic stability. - Fiscal policy will: - Continue to be supportive to the structural reform agenda. - Ensure that revenue is enhanced and expenditure is streamlined. - Monetary and financial sector objectives: - Authorities will ensure that inflation is further brought down. - The financial system will be made more supportive to economic activity and resilient to shocks. - Measures to strengthen and deepen financial markets will continue to be implemented. ### Debt relief, donors, and external support - Authorities look forward to reaching agreement with Malawi’s other bilateral creditors for debt relief similar to Paris Club terms so that the benefits of the HIPC initiative are fully realized. - Authorities trust they will continue to enjoy the support and encouragement of the Fund in this endeavor. ### Public Information Notice highlights (IMF Executive Board, May 3, 2007) - Background context: - Malawi attained the Heavily Indebted Poor Countries (HIPC) completion point in August 2006 and launched the Malawi Growth and Development Strategy. - Key medium-term challenges: raising growth rates, improving economic management capacity, and managing a possible scaling up of external aid. - Malawi needs a large increase in external private capital and aid flows to finance its medium-term development goals. - Recent macroeconomic developments: - Over the previous five years Malawi experienced per capita output growth that was on average negative. - By end-2003/04 domestic debt had reached almost 25 percent of GDP and domestic interest costs consumed almost a quarter of the budget. - In 2005/06 real GDP growth reached 5.3 percent, overall inflation was around 15 percent. - Domestic debt fell below 20 percent of GDP in 2005/06 despite larger-than-programmed domestic borrowing. - The Reserve Bank of Malawi moved to a more flexible exchange rate policy in January 2006; depreciation helped clear private external arrears by end-July 2006. - Outlook and policies for 2006/07: - A bumper harvest is expected to support a rebound in real GDP growth to 7 percent. - Prospects for inflation falling below 10 percent remain positive. - Official external reserves are expected to rise to 1.7 months of imports. - IMF debt relief under the Multilateral Debt Relief Initiative will be used to reduce domestic debt this year, with limited effect on planned expenditures. - Executive Directors’ assessment: - Welcomed satisfactory macroeconomic performance under the PRGF-supported program despite 2005/06 food crisis pressures. - Urged authorities to maintain fiscal discipline, strengthen external reserves, and protect pro-poor spending. - Emphasized containment of rising expectations of spending from debt relief and the need to ensure public spending is efficient and effective. - Called for completion of the public expenditure review with the World Bank and incorporation of MGDS annual performance review findings into the budget. - Recommended reduction of domestic debt to promote long-term fiscal sustainability and free resources for poverty-reducing spending. - Highlighted the challenge of absorbing higher aid and private capital flows while maintaining prudent monetary and fiscal policies. - Welcomed commitment to a flexible exchange rate regime and to strengthen financial intermediation, regulatory framework, creditor rights, and competition in the financial sector. - Looked forward to recommendations of the Financial Sector Assessment Program. ### Selected economic indicators (2004–06) — key figures - GDP at constant market prices: 5.1 (2004 Act.), 2.1 (2005 Act.), 8.5 (2006 Est.) - Nominal GDP (billions of kwacha): 207.2 (2004), 245.7 (2005), 305.1 (2006) - Nominal GDP per capita (U.S. dollars): 150.9 (2004), 161.4 (2005), 170.7 (2006) - GDP deflator: 12.5 (2004), 15.4 (2005), 14.4 (2006) - Consumer prices (end of period): 13.7 (2004), 16.5 (2005), 9.9 (2006) - Food: 14.1 (2004), 17.2 (2005), 10.0 (2006) - Nonfood: 13.3 (2004), 15.8 (2005), 9.7 (2006) - Consumer prices (annual average): 11.4 (2004), 15.5 (2005), 14.0 (2006) - National savings (percent of GDP): 4.5 (2004), -3.1 (2005), 7.6 (2006) - Of which: domestic savings: -10.6 (2004), -23.9 (2005), -13.1 (2006) - Unrequited transfers: 17.3 (2004), 22.8 (2005), 22.4 (2006) - Gross investment (percent of GDP): 14.4 (2004), 13.0 (2005), 14.6 (2006) - Foreign savings (percent of GDP): 9.9 (2004), 16.1 (2005), 7.0 (2006) - Central government (percent of GDP): - Revenue (excluding grants): 23.2 (2004), 25.5 (2005), 24.3 (2006) - Expenditure and net lending: 44.0 (2004), 43.1 (2005), 43.6 (2006) - Underlying balance1/: 0.8 (2004), -0.7 (2005), 0.9 (2006) - Overall balance (excluding grants): -20.8 (2004), -17.6 (2005), -19.3 (2006) - Overall balance: -6.6 (2004), -1.5 (2005), -3.4 (2006) - Money and credit (change in percent of beginning-of-year M2): - Money and quasi money: 29.8 (2004), 14.3 (2005), 22.0 (2006) - Net foreign assets: 6.0 (2004), 5.1 (2005), 24.4 (2006) - Net domestic assets: 23.8 (2004), 9.2 (2005), -2.4 (2006) - Credit to the government: 10.3 (2004), 2.1 (2005), -2.1 (2006) - Credit to the rest of the economy: 11.3 (2004), 5.6 (2005), 7.7 (2006) - Velocity: 4.5 (2004), 4.7 (2005), 4.8 (2006) - External sector (millions of U.S. dollars): - Exports, f.o.b.: 501.5 (2004), 507.4 (2005), 466.5 (2006) - Imports, c.i.f.: 810.2 (2004), -1,069.6 (2005), -889.3 (2006) - Usable gross official reserves: 119.3 (2004), 131.2 (2005), 143.4 (2006) - (months of imports): 1.1 (2004), 1.4 (2005), 1.6 (2006) - Current account (excluding transfers): -27.3 (2004), -38.9 (2005), -29.4 (2006) - Nominal effective exchange rate: -4.3 (2004), -11.4 (2005), ... - Real effective exchange rate: 5.5 (2004), 0.1 (2005), ... - Terms of trade: -2.5 (2004), -10.2 (2005), -1.2 (2006) - Debt stock and service (percent of GDP): - External debt (public sector): 155.3 (2004), 143.0 (2005), 50.6 (2006) - NPV of debt (percent of avg. exports): 257.7 (2004), 361.0 (2005), 33.6 (2006) - External debt service (percent of exports): 21.6 (2004), 22.1 (2005), 30.7 (2006) - Net domestic debt (central government): 22.6 (2004), 21.9 (2005), 17.4 (2006) - Domestic interest payment: 8.4 (2004), 6.3 (2005), 4.9 (2006) - Treasury bill rate (period average): 28.6 (2004), 24.39 (2005), ... - Sources cited in the table: Malawian authorities; and IMF staff estimates and projections. - 1/ Definition of Underlying balance: Overall balance plus statistical discrepancy, excluding grants, revenue and expenditure from maize, interest, foreign-financed development expenditures, and the Health SWAp. *Source: _cr07147 - Conclusion* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07147.pdf_