"Malawi—Economic Rebirth, Renewed Partnerships", By Christine Lagarde, Managing Director, International Monetary Fund
IMF News, January 5, 2013
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- Authors: Christine Lagarde
- Published: January 5, 2013
Global and regional economic context
- Global recovery expected to continue next year but "remains weak and subject to great uncertainty"; "global activity seems stuck in low gear."
- Regional growth projections:
- "growth of around 5¼ percent in Sub-Saharan Africa this coming year."
- "the low-income countries…are growing even more strongly—at around 6 percent."
- Transmission and risks:
- IMF research: "a sustained global slowdown of 2 percentage points of GDP would reduce growth in sub-Saharan Africa by about 1¼ percentage points a year."
- Main external risks cited: "continued uncertainty about prospects in Europe, the United States, and China."
- Food risk: rising global food price pressures concentrated in maize, soybeans, and wheat; "drought and crop failure" as ongoing dangers, exacerbated by climate change.
- Regional resilience and structural trends:
- Since 2000: "debt levels fell from over 100 percent to under 40 percent of GDP, foreign exchange reserves more than doubled, and inflation halved."
- Two-thirds of countries in the region were able to pursue expansionary policies during the crisis and "increase real spending on health and education."
- Trade reorientation: "nontraditional partners account for 50 percent of African imports and 60 percent of exports"; China "is now the region’s largest single trading partner."
- Intra-regional trade "has also doubled since 1990."
- Medium-term demographic potential: "In less than 30 years, Africa will have a labor force of more than a billion people."
- Four key challenges for Africa identified:
- "Faster structural transformation—led by higher productivity in agriculture and greater competitiveness in manufacturing and services."
- "More inclusive growth and job creation."
- "Better management of natural resources."
- "Stronger financial sectors."
A Malawian economic rebirth
- Structural vulnerabilities:
- "Agriculture still accounts for 30 percent of GDP and tobacco still accounts for almost half of total export earnings."
- Result: Malawi is "too vulnerable" to weather, commodity markets, and poverty traps.
- Recent crisis and policy response:
- Upon taking office, President Banda confronted "a dire shortage of foreign exchange" that caused shortages of fuel, capital inputs, and medicine; businesses laid off workers; government could not pay its bills.
- Policy measures taken:
- Currency "devalued the currency by 50 percent" and moved to "a flexible, market-based exchange rate system."
- Removed restrictions on foreign exchange transactions by banks and foreign exchange bureaus.
- Increased petroleum prices and "cut off subsidies by moving to an automatic adjustment mechanism."
- Effects: these reforms "stopped the overvaluation and eased strains on foreign exchange" and "the economic wheels started spinning again."
- Growth and agricultural setback:
- Weather-related decline: "a slump in agriculture—from a weather-related decline in maize production and a halving of the tobacco crop brought about by lower planting during the period of overvaluation."
- Growth estimates:
- "we halved our growth estimate for 2012 to about 2 percent."
- "we expect a strong rebound to 5½ percent this year, assuming strong policy commitment and normal weather conditions."
- Human crisis and social protection:
- Food insecurity: "almost 2 million people—12 percent of the population—face food insecurity."
- Immediate actions: deploying the grain reserve, partnering with World Food Program, providing in-kind food assistance.
- Recommended scaling up: "scale up public works and other social protection programs" and "strengthening implementation capacity."
- Macro priorities while addressing human needs: "stabilize the exchange rate and reduce inflation through tight monetary policy and fiscal restraint."
- Growth strategy and competitiveness:
- Government’s Economic Recovery Plan seen as "lays the foundation for higher and better quality growth."
- Competitiveness and diversification priorities:
- Make it easier for private sector investment, innovation, and expansion.
- Boost investment and upgrade infrastructure, "especially in electricity and transport."
- Current competitiveness benchmark: "Malawi ranks poorly in the World Economic Forum’s Global Competitiveness Index—129th out of 144 countries."
- Inclusion measures:
- Develop robust social safety nets.
- "Expand access to financial services."
- Invest in skills, training, and education.
- Human development and MDG progress:
- Areas with good progress and on track for 2015 targets: "reducing child mortality, combating deadly diseases like HIV/ AIDS and malaria, ensuring environmental sustainability, and strengthening global partnerships for development."
- Lagging areas needing urgent attention: "eradication of extreme poverty, attaining universal primary education, promoting gender equality and empowering women, and improving maternal health."
Partnership between Malawi and the IMF
- Principles of partnership:
- Success requires "cooperation and solidarity" and "country ownership" of reform programs.
- Domestic social partnerships urged: "business community, labor representatives, and civil society organizations."
- How the IMF helps:
- Policy advice: "provide the most honest, objective advice" drawing on nearly 70 years of experience.
- Lending: cushion economic and social costs of crises and "catalyze financial support, by providing a seal of approval on a country’s reform program."
- Focus on low-income members: put the Poverty Reduction and Growth Trust "on a sustainable footing."
- Lending terms: "we will keep charging zero interest on concessional loans through the end of 2014."
- Evidence of IMF-supported program impacts:
- Internal study: "low-income countries with Fund-supported programs score better on both growth and poverty reduction than their peers."
- Fiscal prioritization effects: "Spending on health and education also rises faster in countries with IMF-supported programs than in developing countries as a whole—health spending by 1 percentage point, education spending by ¾ percentage points over five years."
- IMF operational support in Malawi:
- Three-year Extended Credit Facility (agreed last July) aims to "restore stability, boost growth, and scale up social protection."
- IMF technical assistance and capacity building areas in Malawi: "revenue administration, public financial management, the framework for monetary policy, financial sector supervision, and macroeconomic statistics."
- IMF institutional resources for Africa:
- "four regional technical assistance centers, with a fifth coming on line in 2013, plus a regional training center."
- Hands-on assistance in priority areas like managing natural resource wealth.
- Membership framing:
- IMF described as "an economic club of 188 member countries"; when IMF stands with Malawi it proxies "the other 187 member countries standing with you."
Conclusion and call to action
- Vision and motivation:
- Quotation: "Imagination is the beginning of creation. You imagine what you desire; you will what you imagine; and at last you create what you will" (George Bernard Shaw).
- Final exhortation:
- "Let us join together and be co-creators of a new Malawi, a new Africa, a new world."
- Emphasis that "the reform program is your program" and "the future of Malawi lies in your hands."
Statement by Christine Lagarde, Managing Director, International Monetary Fund — Crossroads Hotel, Lilongwe, January 5, 2013 (As prepared for delivery).