IMF Executive Board Approves US$112.3 Million under the ECF Arrangement for Malawi

IMF News, April 30, 2018

Source details

Canonical URL

IMF Executive Board Approves US$112.3 Million under the ECF Arrangement for Malawi

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: April 30, 2018

Approval and Financial Terms

• The Executive Board approved a new three-year arrangement for Malawi under the Extended Credit Facility (ECF) for SDR78.075 million (about US$112.3 million), equivalent of 56.25 percent of Malawi’s quota in the IMF.
• Immediate disbursement: SDR11.15 million (about US$16 million).
• Remaining amount: to be phased over the duration of the program, subject to semi-annual reviews.
• The Executive Board also concluded the 2018 Article IV consultation.

Program Objectives and Policy Measures

• Program aim: entrench macroeconomic stability and foster higher, more inclusive, and resilient growth.
• Fiscal policy:
  • Fiscal consolidation to ensure long-term debt and external sustainability.
  • Raise the amount and quality of spending on critical infrastructure and social sectors.
  • Strengthen public financial management and procurement.
  • Enhance investment planning, increase transparency in the budget process, strengthen the medium-term budgetary framework and cash management, routinize bank reconciliation, close out the arrears clearance program, and implement broad-based tax reforms.
• Monetary policy:
  • Aim to keep inflation within single digits while maintaining positive real interest rates.
  • Reserve Bank of Malawi to strengthen the monetary policy framework, improve access to finance, and safeguard financial sector stability.
• Structural reforms:
  • Improve financial intermediation and access to finance.
  • Advance critical growth-supporting structural reforms to ignite job-creating private sector growth.
• Governance:
  • Tackle governance challenges through improved public financial management and procurement.

Official Assessment (Tao Zhang)

• “Malawi has shown progress in achieving macroeconomic stabilization following two years of drought, with a rebound in growth and inflation reduced to single digits. However, the fiscal position has deteriorated and the public debt to GDP ratio has risen. Increased debt service pressures have reduced space for needed infrastructure and social spending.
• “The authorities are making efforts to entrench macroeconomic stability, raise growth and reduce poverty. Fiscal consolidation will ensure long-term debt and external sustainability. This, combined with continued strengthening of the monetary policy framework, will contain inflation and reduce fiscal dominance. The amount and quality of spending on critical infrastructure and social sectors will be raised. Governance will be improved through reforms in public financial management and procurement. Improved financial intermediation, access to finance, and other critical growth-supporting structural reforms will be advanced. The IMF arrangement under the Extended Credit Facility will support the authorities’ program and efforts.
• “The medium-term economic outlook is favorable, with private sector activity expected to benefit from better infrastructure and an improved business climate. Progress will depend on the authorities’ strong ownership to support successful implementation of their program.”

Recent Economic Developments

• Growth:
  • Growth picked up from 2.3 percent in 2016 to an estimated 4.0 percent in 2017 owing to a recovery in agricultural production.
• Inflation:
  • Inflation reduced below 10 percent—from high double digits in recent years—due to stabilization of food prices, prudent fiscal and monetary policies, and a stable exchange rate.
• Current account:
  • Current account deficit narrowed to 10.0 percent of GDP in 2017 from 13.6 percent in 2016.
• Public debt:
  • Public debt has doubled over the last decade, reaching 55 percent of GDP in 2017 after the withdrawal of donor budget support, securitization of arrears, and recapitalization of the Reserve Bank of Malawi and two public commercial banks.
• Banking system:
  • Banking system remains stable though vulnerabilities have somewhat increased.
• Fiscal execution FY17/18:
  • Revenue shortfalls and expenditure overruns, including the bailout of maize purchase loans by a parastatal, exerted significant pressures on the budget.
  • Authorities implementing remedial measures to improve the fiscal position in FY18/19.

Risks to Outlook

• Downside risks:
  • Political pressures in the run-up to next year’s elections that could weaken policy discipline and reform efforts.
  • Weather-induced shocks.
  • Declines in agricultural commodity prices.

Projections and Key Statistics (selected figures from Malawi: Selected Economic Indicators, 2016–23)

• GDP growth (percent change):
  • 2016: 2.3
  • 2017 (Est.): 4.0
  • 2018 (Proj.): 3.5
  • 2019 (Proj.): 4.5
  • 2020 (Proj.): 5.0
  • 2021 (Proj.): 5.5
  • 2022 (Proj.): 6.0
  • 2023 (Proj.): 6.5
• Nominal GDP (billions of Kwacha)1:
  • 2016: 3,910
  • 2017: 4,503
  • 2018: 5,068
  • 2019: 5,654
  • 2020: 6,300
  • 2021: 6,993
  • 2022: 7,752
  • 2023: 8,623
• GDP deflator (percent change):
  • 2016: 19.5
  • 2017: 10.7
  • 2018: 8.8
  • 2019: 6.8
  • 2020: 6.1
  • 2021: 5.2
  • 2022: 4.6
  • 2023: 4.4
• Consumer prices (end of period):
  • 2016: 20.0
  • 2017: 7.1
  • 2018 (Proj.): 9.0
  • 2019 (Proj.): 7.5
• National savings (percent of GDP):
  • 2016: -2.8
  • 2017: 3.7
  • 2018 (Proj.): 4.8
  • 2019 (Proj.): 5.1
  • 2020 (Proj.): 5.4
  • 2021 (Proj.): 5.8
• Gross investment (percent of GDP):
  • 2016: 10.8
  • 2017: 13.7
  • 2018 (Proj.): 13.4
  • 2019 (Proj.): 12.9
• Central government revenue (percent of GDP, fiscal year basis):
  • 2016: 23.6
  • 2017: 22.4
  • 2018 (Proj.): 22.6
• Central government expenditure and net lending (percent of GDP):
  • 2016: 28.5
  • 2017: 28.7
  • 2018 (Proj.): 29.7
  • 2019 (Proj.): 26.0
• Overall balance (including grants, percent of GDP):
  • 2016: -6.8
  • 2017: -5.1
  • 2018 (Proj.): -7.3
  • 2019 (Proj.): -3.4
  • 2020 (Proj.): -2.6
  • 2021 (Proj.): -2.3
  • 2022 (Proj.): -2.0
  • 2023 (Proj.): -1.8
• Money and quasi money (change in percent of broad money at the beginning of the period):
  • 2016: 15.2
  • 2017: 19.7
  • 2018 (Proj.): 12.6
• Net foreign assets (change in percent of broad money):
  • 2016: 2.1
  • 2017: 11.1
  • 2018 (Proj.): 4.7
• Exports (goods and services, US$ millions):
  • 2016: 1,603
  • 2017: 1,695
  • 2018 (Proj.): 1,857
• Imports (goods and services, US$ millions):
  • 2016: 2,520
  • 2017: 2,547
  • 2018 (Proj.): 2,747
• Gross official reserves (US$ millions):
  • 2016: 605
  • 2017: 757
  • 2018 (Proj.): 703
  • 2019 (Proj.): 755
  • 2020 (Proj.): 898
• Current account (percent of GDP):
  • 2016: -10.3
  • 2017: -7.8
• Total public debt (percent of GDP):
  • 2016: 54.4
  • 2017: 55.1
  • 2018 (Proj.): 54.3
  • 2019 (Proj.): 52.6
  • 2020 (Proj.): 50.5
  • 2021 (Proj.): 48.2
  • 2022 (Proj.): 45.7
• External debt (public sector, percent of GDP):
  • 2016: 33.2
  • 2017: 32.6
  • 2018 (Proj.): 32.1
• NPV of Public external debt (percent of exports):
  • 2016: 76.3
  • 2017: 77.2
  • 2018 (Proj.): 74.2
  • 2019 (Proj.): 72.2

1 The current GDP base year is 2010. 2 The fiscal year starts in July and ends in June. The current financial year, 2018, runs from July 1, 2017 to June 30, 2018.

IMF press release, April 30, 2018.

References

• Tao Zhang
• Malawi and the IMF
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home