IMF Executive Board Discussed First Review under Malawi’s Staff-Monitored Program with Executive Board Involvement
IMF News, July 28, 2023
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- Published: July 28, 2023
Overview and context
- The Executive Board of the International Monetary Fund (IMF) discussed the first review of the 12-month Staff-Monitored Program with Executive Board involvement (PMB) for Malawi.
- The review was approved by the Management of the IMF on July 13, 2023.
- Since PMB approval on November 11, 2022, Malawi has been affected by a series of shocks, including an outbreak of cholera and Cyclone Freddy, which caused significant loss of life and damage to infrastructure.
- In this context, growth has been weaker and inflation higher than expected; the fiscal deficit in FY2022/23 (April/March) was larger than expected at the time of the PMB.
- External strains noted include shortage of foreign exchange, difficulties securing trade credit, and a widening spread between official and bureau exchange rates.
- Despite a sharp reduction in the current account deficit, accumulation of foreign exchange reserves has been slower than expected, implying an increase in informal trade.
- Cyclone Freddy has weighed on the outlook for 2023, leading to a lower growth forecast and a higher inflation forecast.
- Key downside risks identified: slippages in program implementation, delays in the ongoing external debt restructuring process, and further external shocks.
- The Executive Board agreed with staff that Malawi is on track to achieve the objectives of the PMB.
Program performance, corrective actions, and policy priorities
- Performance under the PMB has been mixed; authorities are taking corrective actions to establish a track record of policy implementation and possibly pave the way to an Extended Credit Facility (ECF) arrangement.
- Statement by Mr. Bo Li, Deputy Managing Director and Acting Chair:
- “Steadfast implementation of and unwavering commitment to this Staff-Monitored Program with Executive Board Involvement (PMB) will be critical to restore macroeconomic stability and establish a track record to support a prospective request for an Extended Credit Facility (ECF) arrangement.”
- “Successful debt restructuring is vital to deliver macroeconomic stability. The authorities’ external debt restructuring strategy aims to bring external debt service down substantially through a significant treatment of commercial debt and official bilateral debt. A concerted effort among the authorities, their creditors, and their international development partners will be crucial to ensure successful implementation of the external debt restructuring strategy.”
- “Fiscal discipline, supported by a robust Public Financial Management (PFM) system and timely production of comprehensive fiscal reports, remains critical. Concerted effort by the authorities and other domestic stakeholders to prepare for fiscal financing challenges is important. Price stability supported by fiscal consolidation is critical to prevent a further erosion of purchasing power for those living in poverty and food insecurity. Rebuilding buffers is critically important to reduce Malawi’s vulnerability to external shocks.”
- “Addressing weakness in governance and institutions remain important priorities, as demonstrated by the recent fertilizer deal, which is concerning from a governance perspective. The authorities’ governance and procurement practices should be strengthened to avoid such incidents in the future.”
- “The Management-approved Staff Monitored Program (SMP) is sufficiently robust and remains on track to meet its objectives.”
Debt restructuring and financing implications
- External debt restructuring is a central pillar to reduce external debt service substantially via significant treatment of commercial debt and official bilateral debt.
- Successful implementation requires coordination among authorities, creditors, and international development partners.
- External strains and slower-than-expected reserve accumulation increase vulnerability and highlight the need to rebuild buffers.
Key statistics and projections (selected from Table 1)
- GDP at constant market prices:
- 2021 Actual: 4.6
- 2022 PMB Approval: 0.8
- 2023 Est.: 2.4
- 2024 Proj.: 1.7
- 2025 Proj.: 3.3
- 2026 Proj.: 3.8
- 2027 Proj.: 4.3
- 2028 Proj.: 4.5
- Nominal GDP (billions of Kwacha):
- 2021: 9,976
- 2022: 11,354
- 2023 Est.: 11,799
- 2024 Proj.: 14,018
- 2025 Proj.: 14,768
- 2026 Proj.: 17,728
- 2027 Proj.: 20,462
- 2028 Proj.: 22,948
- (continued series): 25,503; 28,211
- Consumer prices (end of period):
- 2021: 11.5
- 2022: 26.0
- 2023 Est.: 25.4
- 2024 Proj.: 20.4
- 2025 Proj.: 24.4
- 2026 Proj.: 15.2
- 2027 Proj.: 9.9
- 2028 Proj.: 7.6
- Additional: 6.5
- Consumer prices (annual average):
- 2021: 9.3
- 2022: 20.8
- 2023 Est.: 22.7
- 2024 Proj.: 24.8
- 2025 Proj.: 18.3
- 2026 Proj.: 12.2
- 2027 Proj.: 8.1
- 2028 Proj.: 6.8
- National savings (percent of GDP):
- 2021: -5.2
- 2022: -4.8
- 2023 Est.: -3.6
- 2024 Proj.: 4.7
- 2025 Proj.: 2.5
- 2026 Proj.: 0.7
- 2027 Proj.: 3.4
- 2028 Proj.: 3.6
- Gross investment (percent of GDP):
- 2021: 8.9
- 2022: 13.1
- 2023 Est.: 10.1
- 2024 Proj.: 12.7
- 2025 Proj.: 9.8
- 2026 Proj.: 9.5
- 2027 Proj.: 6.4
- 2028 Proj.: 6.9
- (additional series): 10.2; 7.3; 8.7; 6.2; 5.5; 5.4; 2.6; 3.0; 2.8; 3.1
- Central government revenue (percent of GDP on a fiscal year basis):
- 2021: 14.6
- 2022: 15.4
- 2023 Est.: 14.3
- 2024 Proj.: 17.4
- 2025 Proj.: 17.7
- 2026 Proj.: 19.8
- 2027 Proj.: 18.9
- 2028 Proj.: 18.1
- Tax and nontax revenue:
- 2021: 12.9
- 2022: 13.4
- 2023 Est.: 12.5
- 2024 Proj.: 13.9
- 2025 Proj.: 13.5
- 2026 Proj.: 14.9
- 2027 Proj.: 17.5
- 2028 Proj.: 17.2
- (additional series): 15.9; 17.0
- Grants (percent of GDP):
- 2021: 1.9
- 2022: 1.8
- 2023 Est.: 1.6
- 2024 Proj.: 3.9
- 2025 Proj.: 2.7
- 2026 Proj.: 2.3
- 2027 Proj.: 1.4
- 2028 Proj.: 1.1
- Overall balance (including grants) (percent of GDP):
- 2021: -7.4
- 2022: -9.7
- 2023 Est.: -11.8
- 2024 Proj.: -10.5
- 2025 Proj.: -9.4
- 2026 Proj.: -7.3
- 2027 Proj.: -5.0
- Primary balance:
- 2021: -5.4
- 2022: -3.3
- 2023 Est.: -6.8
- 2024 Proj.: -4.9
- 2025 Proj.: -1.6
- 2026 Proj.: 1.2
- 2027 Proj.: 2.1
- Broad money (change in percent of broad money at the end of the period):
- 2021: 30.0
- 2022: 38.8
- 2023 Est.: 23.5
- 2024 Proj.: 25.2
- 2025 Proj.: 20.0
- 2026 Proj.: 11.1
- 2027 Proj.: 10.6
- Net foreign assets:
- 2021: -3.9
- 2022: 42.1
- 2023 Est.: -13.8
- 2024 Proj.: 19.1
- 2025 Proj.: -5.3
- 2026 Proj.: 7.2
- 2027 Proj.: 4.4
- Credit to the private sector (percent change):
- 2021: 22.2
- 2022: 27.9
- 2023 Est.: 24.1
- 2024 Proj.: 14.7
- 2025 Proj.: 16.0
- 2026 Proj.: 5.1
- 2027 Proj.: 8.8
- 2028 Proj.: 10.4
- Exports (goods and services) (US$ millions):
- 2021: 1,191
- 2022: 1,294
- 2023 Est.: 1,125
- 2024 Proj.: 1,421
- 2025 Proj.: 1,322
- 2026 Proj.: 1,454
- 2027 Proj.: 1,568
- 2028 Proj.: 1,662
- (continued): 1,814; 1,940
- Imports (goods and services) (US$ millions):
- 2021: 3,332
- 2022: 3,406
- 2023 Est.: 1,835
- 2024 Proj.: 3,173
- 2025 Proj.: 2,487
- 2026 Proj.: 2,608
- 2027 Proj.: 2,700
- 2028 Proj.: 2,744
- (continued): 2,818; 2,936
- Gross official reserves (US$ millions):
- 2021: 429
- 2022: 172
- 2023 Est.: 120
- 2024 Proj.: 409
- 2025 Proj.: 499
- 2026 Proj.: 747
- 2027 Proj.: 846
- 2028 Proj.: 996
- (continued): 1,106; 1,202
- (months of imports): 3.7
- Net international reserves:
- 2021: -834.8
- 2022: -584.1
- 2023 Est.: -1,237.9
- 2024 Proj.: -312.2
- 2025 Proj.: -673.1
- 2026 Proj.: -594.4
- 2027 Proj.: -575.9
- 2028 Proj.: -438.7
- (continued): -321.4; -156.3
- Current account (percent of GDP) and related measures:
- Current account, excl. official transfers (percent of GDP): -8.9; -7.5
- Current account, excl. project related imports (percent of GDP): -12.0; -12.3; -4.3; -5.7
- Terms of trade (percent change):
- 2021: -19.0
- 2022: -14.9
- 2023 Est.: -14.3
- 2024 Proj.: -0.5
- 2025 Proj.: 11.4
- 2026 Proj.: -1.8
- 2027 Proj.: 2.2
- 2028 Proj.: -0.9
- External debt (public sector) (percent of GDP):
- 2021: 31.5
- 2022: 38.9
- 2023 Est.: 34.4
- 2024 Proj.: 37.1
- 2025 Proj.: 35.3
- 2026 Proj.: 33.5
- 2027 Proj.: 30.9
- 2028 Proj.: 28.8
- (continued): 27.0
- NPV of public external debt (percent of exports):
- 2021: 218.6
- 2022: 202.3
- 2023 Est.: 264.7
- 2024 Proj.: 176.6
- 2025 Proj.: 187.1
- 2026 Proj.: 162.3
- 2027 Proj.: 145.9
- 2028 Proj.: 132.3
- (continued): 119.3; 110.1
- Domestic public debt (percent of GDP):
- 2021: 37.7
- 2022: 40.8
- 2023 Est.: 37.5
- 2024 Proj.: 43.2
- 2025 Proj.: 44.9
- 2026 Proj.: 47.4
- 2027 Proj.: 48.6
- 2028 Proj.: 49.3
- (continued): 48.1
- Total public debt (percent of GDP):
- 2021: 61.5
- 2022: 76.6
- 2023 Est.: 75.2
- 2024 Proj.: 74.6
- 2025 Proj.: 80.2
- 2026 Proj.: 80.9
- 2027 Proj.: 79.6
- 2028 Proj.: 78.1
- (continued): 75.1
- External debt service (percent of exports):
- 2021: 55.6
- 2022: 12.0
- 2023 Est.: 26.7
- 2024 Proj.: 59.8
- 2025 Proj.: 20.1
- External debt service (percent of revenue excl. grants):
- 2021: 7.8
- 2022: 44.7
- 2023 Est.: 18.7
- 2024 Proj.: 11.6
- 2025 Proj.: 9.4
Policy recommendations and priorities (from IMF statement)
- Maintain steadfast implementation and unwavering commitment to the PMB to restore macroeconomic stability and build a policy track record for a prospective ECF request.
- Achieve successful external debt restructuring through significant treatment of commercial and official bilateral debt; ensure concerted efforts among authorities, creditors, and development partners.
- Preserve fiscal discipline supported by a robust Public Financial Management (PFM) system and timely comprehensive fiscal reporting.
- Prepare for fiscal financing challenges through concerted domestic stakeholder efforts.
- Support price stability with fiscal consolidation to protect purchasing power among the poor and food-insecure.
- Rebuild buffers to reduce vulnerability to external shocks.
- Strengthen governance and procurement practices to prevent concerns similar to the recent fertilizer deal.
Sources: Malawian authorities; and IMF staff estimates and projections. Press Release No. 23/282.