IMF Executive Board Discussed the Second Review under Malawi’s Staff Monitored Program with Executive Board Involvement and Approved a 48-month Arrangement under the Extended Credit Facility
IMF News, November 15, 2023
Source details
- Canonical URL
- IMF Executive Board Discussed the Second Review under Malawi’s Staff Monitored Program with Executive Board Involvement and Approved a 48-month Arrangement under the Extended Credit Facility
Other formats
Bibliographic details
- Published: November 15, 2023
Approval and financing
- Executive Board approved a 48-month arrangement under the Extended Credit Facility (ECF) for Malawi with access of 95 percent of quota, equivalent to SDR131.86 million (about [US$178] million).
- The decision allows an immediate disbursement of SDR26.37 million (about [US$35] million).
- Alternate wording in the release: approved a 48-month arrangement under the ECF for Malawi in an amount equivalent to SDR131.86 million (about US$175 million), with an immediate disbursement of SDR26.37 million (about US$35 million).
Macroeconomic context and challenges
- Malawi faces a challenging macroeconomic environment driven by:
- Years of unsustainable domestic and external borrowing.
- Adverse impact of multiple external shocks, including an outbreak of cholera and cyclone Freddy in the reporting year.
- Unsustainable external debt and debt service needs that are eroding limited fiscal space.
- Large fiscal budget deficit financed in part through domestic financing and monetary financing, putting pressure on the exchange rate and increasing the rate of inflation.
- The Executive Board noted Malawi has struggled to sustain growth for decades despite large inflows of official development assistance; the past three years have seen stagnating growth and widening macroeconomic imbalances.
Objectives and expected effects of the ECF-supported program
- The ECF arrangement aims to:
- Support the authorities’ macroeconomic adjustment and reform agenda to restore macroeconomic stability.
- Build a foundation for inclusive and sustainable growth.
- Strengthen resilience to climate-related shocks.
- Address weaknesses in governance and institutions.
- The arrangement is also expected to catalyze grant financing and capital inflows including foreign direct investment and trade credit.
Statement by Ms. Gita Gopinath, First Deputy Managing Director and Acting Chair
- The Malawian authorities have shown unwavering commitment to the Staff-Monitored Program with Executive Board Involvement (PMB) and, together with tangible progress on securing debt treatment, have established a track record for an ECF arrangement with the IMF.
- The ECF arrangement will:
- Support ongoing macroeconomic adjustment and reforms.
- Catalyze grant financing and foreign direct investment.
- Provide a framework for structural reforms.
- Key messages:
- “Successful external debt restructuring is vital as there is no reasonable mix of adjustment and financing alone that can deliver macroeconomic stability.”
- Malawian authorities are seeking comparable treatment from all official bilateral creditors and continue to pursue good faith negotiations with commercial creditors; “time is of the essence for debt relief.”
- Fiscal discipline, supported by robust public financial management and timely production of comprehensive fiscal reports, remains critical.
- Price stability is critical to prevent further erosion of purchasing power.
- Rebuilding international reserve buffers and allowing greater exchange rate flexibility are critically important to bring back trade credit and reduce vulnerability to external shocks.
- Addressing weakness in governance and institutions will be important.
- Shift growth model from consumption-driven to production-driven and from government-led to private-sector-led (aligned with Malawi 2063) to make growth inclusive, sustainable, and resilient to climate-related shocks.
- “The PMB was sufficiently robust to meet its objectives”.
Malawi: Selected Economic Indicators, 2022-28 (as presented)
- National accounts and prices (percent change, unless otherwise indicated)
- GDP at constant market prices: 2022: 0.8; 2023 Prel./PMB 1st Review: 1.7; 2024 Proj.: 1.6; 2025: 3.3; 2026: 3.8; 2027: 4.3; 2028: 4.5; thereafter: 4.6
- Nominal GDP (billions of Kwacha): 2022: 11,799; 2023: 14,768; 2024: 15,396; 2025: 17,728; 2026: 19,900; 2027: 23,454; 2028: 26,326; following years: 29,279; 32,390
- GDP deflator: 2022: 17.3; 2023: 23.1; 2024: 28.4; 2025: 16.3; 2026: 25.1; 2027: 13.5; 2028: 7.6; subsequent: 6.4; 5.8
- Consumer prices (end of period): 2022: 25.4; 2023: 24.4; 2024: 40.0; 2025: 15.2; 2026: 18.3; 2027: 9.8; 2028: 6.5
- Consumer prices (annual average): 2022: 20.8; 2023: 24.8; 2024: 30.3; 2025: 27.9; 2026: 14.7; 2027: 8.1; 2028: 6.8
- Investment and savings (percent of GDP)
- National savings: 2022: 10.0; 2023: 4.7; 2024: 6.2; 2025: 2.5; 2026: 2.1; 2027: 2.3; 2028: 0.4; subsequent: 2.0; 2.6
- Government (savings): 2022: -5.6; 2023: -6.2; 2024: -4.6; 2025: -6.4; 2026: -4.2; 2027: -3.9; 2028: -1.9; thereafter: -1.2
- Private (savings): 2022: 15.5; 2023: 11.0; 2024: 10.9; 2025: 9.0; 2026: 7.7; 2027: 4.4; 2028: 4.0
- Gross investment: 2022: 13.1; 2023: 12.7; 2024: 13.9; 2025: 11.5; 2026: 10.6; 2027: 12.2; 2028: 9.4; thereafter: 10.2; 9.9; 11.2; 8.7; 7.9; 9.3; 6.3; 4.8; 3.0; 2.8; 2.7; 2.9; 3.1; 5.3
- Saving-investment balance: 2022: -3.2; 2023: -7.9; 2024: -7.6; 2025: -9.0; 2026: -8.5; 2027: -9.9; 2028: -8.2; thereafter: -7.4
- Central government (percent of GDP on a fiscal year basis) 1, 2
- Revenue: 2022: 14.3; 2023: 17.4; 2024: 17.2; 2025: 17.7; 2026: 18.4; 2027: 18.8; 2028: 17.6; thereafter: 16.6
- Tax and nontax revenue: 2022: 12.5; 2023: 13.3; 2024: 14.9; 2025: 14.0; 2026: 15.8; 2027: 16.1; 2028: 15.7; thereafter: 16.6
- Grants: 2022: 1.8; 2023: 3.9; 2024: 3.2; 2025: 2.2
- Expenditure and net lending: 2022: 22.6; 2023: 29.3; 2024: 28.9; 2025: 27.5; 2026: 26.5; 2027: 25.9; 2028: 23.3; thereafter: 22.9
- Overall balance (excluding grants): 2022: -10.8; 2023: -15.8; 2024: -15.6; 2025: -13.2; 2026: -13.9; 2027: -10.7; 2028: -9.8; thereafter: -6.3
- Overall balance (including grants): 2022: -11.8; 2023: -11.7; 2024: -10.5; 2025: -8.1; 2026: -7.1; 2027: -5.7; 2028: -4.1
- Foreign financing: 2022: 0.6; 2023: -0.3; 2024: 0.3; 2025: -0.4; 2026: -0.6
- Total domestic financing: 2022: 6.9; 2023: 8.5; 2024: 8.4; 2025: 8.0; 2026: 5.0; 2027: 3.5
- Financing gap/residual gap: 2022: 0.0; 2023: 1.5; 2024: 2.4; 2025: 3.4; 2026: 1.9
- Primary balance: 2022: -5.0; 2023: -6.8; 2024: -4.9; 2025: -5.4; 2026: -1.1
- Domestic primary balance 3: 2022: -4.4; 2023: -3.8; 2024: -2.8; 2025: -3.0; 2026: 1.0; 2027: 3.7
- Money and credit (change in percent of broad money at the end of the period, unless otherwise indicated)
- Broad money: 2022: 38.8; 2023: 25.2; 2024: 30.5; 2025: 20.0; 2026: 17.9; 2027: (not fully listed) (series continues)
- Net foreign assets: 2022: -13.8; 2023: -5.3; 2024: -13.3; 2025: 12.6; 2026: 10.4
- Net domestic assets: 2022: 52.6; 2023: 43.8; 2024: 11.7; 2025: 7.5; 2026: 6.0; 2027: 7.4
- o/w Net claims on the government: 2022: 39.0; 2023: 26.1; 2024: 43.3; 2025: 8.8; 2026: 12.8
- Credit to the private sector (percent change): 2022: 24.1; 2023: 16.0; 2024: 19.6; 2025: 8.2; 2026: 8.9; 2027: 9.1; 2028: 10.7
- External sector (US$ millions, unless otherwise indicated)
- Exports (goods and services): 2022: 1,128; 2023: 1,322; 2024: 1,428; 2025: 1,454; 2026: 1,552; 2027: 1,653; 2028: 1,730; subsequent: 1,872; 1,984
- Imports (goods and services): 2022: 1,835; 2023: 2,487; 2024: 2,680; 2025: 2,608; 2026: 2,695; 2027: 2,969; 2028: 3,011; subsequent: 3,136; 3,215
- Gross official reserves: 2022: 120; 2023: 499; 2024: 394; 2025: 747; 2026: 714; 2027: 967; 2028: 1,081; thereafter: 1,133; 1,135
- (months of imports): 2022: 0.5; 2023: 4.1; 2024: 4.2
- (percent of reserve money): 2022: 21.6; 2023: 106.1; 2024: 69.9; 2025: 153.3; 2026: 119.4; 2027: 153.4; 2028: 161.7; thereafter: 159.6; 151.0
- Net international reserves 4: 2022: -1,247; 2023: -673; 2024: -1,052; 2025: -594; 2026: -667; 2027: -468; 2028: -366; thereafter: -306; -232
- Current account (percent of GDP): (not fully listed in source excerpt)
- Real effective exchange rate (percent change): ...
- Overall balance (percent of GDP): -0.1; -2.6; -2.2; 0.1
- Financing gap (percent of GDP): 0.9; 0.2
- Terms of trade (percent change): -14.2; 11.4; -1.8; -0.8
- Debt stock and service (percent of GDP, unless otherwise indicated)
- External debt (public sector): 2022: 34.8; 2023: 37.1; 2024: 39.3; 2025: 35.3; 2026: 35.2; 2027: 33.8; 2028: 31.2; thereafter: 28.8; 26.3
- NPV of public external debt (percent of exports): 2022: 269.9; 2023: 187.1; 2024: 178.8; 2025: 162.3; 2026: 154.8; 2027: 142.8; 2028: 131.3; thereafter: 118.8; 108.9
- Domestic public debt 5: 2022: 40.8; 2023: 43.2; 2024: 42.0; 2025: 44.9; 2026: 39.8; 2027: 41.0; 2028: 42.3; thereafter: 43.0; 41.7
- Total public debt 5: 2022: 75.7; 2023: 80.2; 2024: 81.3; 2025: 75.0; 2026: 74.8; 2027: 73.5; 2028: 71.8; thereafter: 68.0
- External debt service (percent of exports): 2022: 11.9; 2023: 59.8; 2024: 58.1; 2025: 18.0; 2026: 10.8
- Sources for indicators: Malawian authorities; and IMF staff estimates and projections.
- Technical notes included in the release:
1. The financial year, 2021, runs from July 1, 2020 to June 30, 2021. FY2021/22 covers 1 July 2021 to 31 March 2022, to accommodate the transition to an April - March fiscal year starting from FY2022/23. 2. Government fiscal statistics are reported following the Government Finance Statistics Manual (2014) starting 2020 projections and going forward. 3. Domestic primary balance is calculated by subtracting current expenditures (except interest payment) and domestically-financed development expenditures from tax and nontax revenues. 4. 2022 NIR is calculated as defined in the TMU at the time of the PMB application. Thereafter, the net international reserves reported not only subtract foreign currency drains (FCD) as defined in the TMU of the First Review of the PMB, but also all outstanding foreign currency debt service to external creditors to which the RBM (including as an agent of the government) is in arrears and or servicing via other means, in line with debt restructuring strategy. 5. Domestic debt is at face value and future borrowings is at cost value.
IMF Executive Board press release, November 15, 2023.
