Statement at the end of an IMF Staff Visit to Malawi

IMF News, March 24, 2020

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With the evolution of the COVID-19 outbreak still largely unknown, the economic outlook is subject to substantial uncertainty.
Prospects for the remainder of the year will depend on the extent of transmission to Malawi of COVID-19 and the magnitude of associated global and regional economic spillovers.
Recent drivers of growth:
- Strong agricultural harvests.
- Reconstruction activity after Cyclone Idai.
Medium-term growth projection:
- Growth may rise further to 6-7 percent, backed by infrastructure that is more resilient to shocks from climate change, improved access to finance, crop diversification, and an improved business climate.
Inflation outlook:
- Anticipated to decline from 11.5 percent at end-2019 to 9.3 percent at end-2020, as elevated food inflation moderates, and gradually converge to 5 percent over the medium term.
Key risk:
- Potential for deeper disruption to economic activity in Malawi from the spread of COVID-19.

Fiscal developments:
- The authorities regained control over the budget in the first half of FY 2019/20, but maintaining this performance for the second half of the fiscal year will be challenging.
Expenditure adjustments:
- Expenditures have appropriately been increased to cover the cost of the upcoming election and to finance urgent health care preparations consistent with the government’s COVID-19 contingency plan developed with support from the WHO and other development partners.
Revenue pressures:
- Pressures from COVID-19 and political uncertainties ahead of the new Presidential elections are weighing on revenues.
Policy actions and commitments:
- Authorities are deploying measures to enhance spending efficiencies and address revenue shortfalls in the current fiscal year.
- They expect to shift to a positive domestic primary balance in the coming years.
- Committed to repaying arrears accumulated in recent years and addressing shortfalls in the system that led to them.
- Will continue enhancing tax policy and revenue administration.
- Critical reforms identified: strengthening transparency in the budget process, the medium-term budgetary framework, cash management, routinized bank reconciliation, and gradual upgrading of the existing public financial management system.

Monetary policy focus:
- Remains focused on preserving price stability over the medium-term.
Banking sector improvements:
- Banking system resilience continues to improve, with non-performing loans (NPLs) declining over the last three years and improved provisioning.
- Credit to the private sector has picked up in recent months.
Structural barriers to expanding access to finance:
- Challenges with the collateral registry.
- Mobile banking issues.
- Property rights constraints.

Malawi Growth and Development Strategy (MGDS) III aims:
- Significant improvements in building resilience to climate change, productivity and competitiveness to unlock private sector potential.
Infrastructure and debt considerations:
- Authorities will continue to implement large-scale infrastructure projects, while preserving debt sustainability.
- Malawi’s debt has risen but both its external and overall risk of debt distress remain “moderate.”
Recommended public sector reforms:
- Improve public investment management.
- Enhance oversight and monitoring of state-owned enterprises and other parastatals.
- Strengthen debt management.
- Aim to reduce risks and benefit from more efficient and better quality spending.

Mission details:
- An IMF team led by Pritha Mitra, Mission Chief for Malawi, held a mission during March 10-23, 2020, to conduct the 2020 Article IV Consultation and hold discussions on the fourth review of the three-year arrangement for Malawi under the Extended Credit Facility (ECF) arrangement (Press Release No. 18/157).
- Discussions were held in Lilongwe, Blantyre, and by video-conference from Washington D.C.
Engagement and stakeholders:
- The team held meetings with Minister of Finance Joseph Mwanamvekha, Governor of the Reserve Bank of Malawi (RBM) Dalitso Kabambe, other senior government and RBM officials, a broad range of national stakeholders outside government, as well as representatives of Malawi’s development partners.
Process and follow-up:
- The mission and the authorities had productive discussions on the 2020 Article IV Consultation and the fourth review under the ECF arrangement.
- These discussions will continue in the weeks ahead as the impact of the COVID-19 outbreak on Malawi become clearer.
Note on ECF:
- 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.

Statement at the end of an IMF Staff Visit to Malawi, March 24, 2020, IMF staff.