IMF Staff Completes Review Mission to Malawi

IMF News, March 22, 2017

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A second consecutive year of the El Niño-induced drought created an unprecedented humanitarian crisis that placed an estimated 6.7 million people—or 40 percent of the population—at risk of food insecurity.
IMF and development partners' intervention helped stabilize maize prices and alleviated the adverse impact of the drought on the vulnerable population.
The authorities expressed gratitude for the support of the IMF and development partners for their sizable contributions in addressing the humanitarian crisis.

Real GDP growth, after two consecutive years of drought, fell below 3 percent in 2016 but is expected to pick up in the range of 4 to 5 percent in 2017.
The consumption-led recovery is expected to be driven mainly by a rebound in the agriculture, wholesale and retail, and telecommunications sectors.
Annual inflation has now fallen to 16.1 percent (year-on-year) in February 2017—its lowest level in recent years. Both food and non-food inflation rates have contributed to the downward trend, reflecting prudent monetary and fiscal policies and the stabilization of food prices on account of humanitarian response.
Foreign exchange reserve cover stabilized at about three months of imports.

Tight monetary policy, which kept short-term money market rates positive in real terms, and stronger fiscal management were key to restoring confidence in the exchange rate that has remained stable.
Commitment to the flexible exchange rate regime and the automatic fuel pricing mechanism continued to help Malawi respond to external shocks.
Prudent fiscal policy, when combined with monetary policy geared toward maintaining positive real interest rates, should facilitate the achievement of the program’s objective of single digit inflation.

Discussions emphasized the need to consolidate recent improvements in revenue mobilization to contain current expenditures and reorient the budget toward development spending to improve resilience and address critical infrastructure gaps.
The team underscored the need to clear past arrears, implement expenditure commitment controls to prevent their re-emergence, and to safeguard debt sustainability in light of the increase in the level of domestic debt.
Completing bank reconciliations for FY15/16 is critical for presenting the review to the IMF Executive Board.

A team from the IMF, led by Oral Williams, visited Lilongwe from March 8–23, 2017, to conduct discussions on the ninth and final review under the Extended Credit Facility (ECF) arrangement.
Based on progress to date, it is anticipated that a request to complete the ninth review under the ECF-supported program could be submitted for consideration by the IMF’s Executive Board in June 2017.
Footnote on the ECF arrangement: The ECF is a lending arrangement that provides sustained program engagement over the medium to long-term in case of protracted balance of payments problems. The arrangement for Malawi in an amount equivalent to SDR 104.1 million (about US$ 144.4 million) was approved on July 23, 2012.

The team reached staff level understandings with the authorities to ensure that recent improvements in macroeconomic policy and outcomes are sustained.
The team met with President Arthur Peter Mutharika, Minister of Finance Goodall Gondwe, Governor of the Reserve Bank of Malawi (RBM) Charles Chuka, other senior government and RBM officials, a broad range of national stakeholders outside government, as well as representatives of Malawi’s development partners.
The team would like to thank the authorities for their hospitality and constructive cooperation.

IMF Press Release — March 22, 2017