IMF Staff Holds Review Mission to Malawi

IMF News, September 29, 2016

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A team from the International Monetary Fund (IMF), led by Oral Williams, visited Lilongwe September 14–28, 2016 to conduct discussions on the ninth review under the Extended Credit Facility (ECF) arrangement.
At the end of the mission, Mr. Williams issued a staff statement conveying preliminary findings; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The ECF arrangement for Malawi is in an amount equivalent to SDR 104.1 million (about US$ 144.4 million) and was approved on July 23, 2012.

The El Niño-induced drought:
- "continues to weigh heavily on economic activity and has placed an estimated 6.5 million people at risk of food insecurity."
- The shortfall in maize production is estimated at 800,000 metric tons.
IMF financial support and use:
- On June 20, 2016 the Executive Board approved the disbursement of $78.6 million.
- Of the $78.6 million, $49.2 million was explicitly intended to help the Malawian government finance imports of maize as part of the donor-coordinated humanitarian relief effort.
Additional needs:
- "additional resources are needed to fully fund Malawi’s Food Insecurity Response Plan."
- "additional maize imports are needed to address the shortfall in maize production estimated at 800,000 metric tons and to ensure the effectiveness of the humanitarian response."

Growth and production:
- "Economic growth has declined for a second consecutive year, reflecting sharp falls in agricultural production and electricity generation, and weak growth in credit to the private sector."
Program performance at end-June:
- "Net domestic financing of the government and net domestic assets of the central bank exceeded their ceilings, in part due to revenue shortfalls."
- "Net international reserves of the central bank were lower than targeted, reflecting lower-than-expected tobacco export revenues."
- "Net domestic financing of the government was missed marginally."
Public debt:
- "public debt, which has now risen from 40 percent of GDP in 2012 to 58 percent of GDP in 2016."

Expenditure and financing:
- "expenditures and commitments need to be kept within available funding to avoid the emergence of new payment arrears and increased recourse to domestic financing, which would undermine the fight against inflation."
- "Maize subsidies, should they arise, would need to be carefully targeted to the most vulnerable segments of the population and managed in a cost-effective way that does not strain public finances further and worsen public debt."
Exchange rate and monetary actions:
- "Commitment to the flexible exchange rate regime and the automatic fuel pricing mechanism has helped Malawi to respond to external shocks."
- The kwacha "has depreciated by about 29 percent since end-2015" and "has recently begun to stabilize."
- Stabilization factors include "efforts by the central bank to absorb excess liquidity from the banking system, aimed at keeping short-term interest rates positive in real terms, to strengthen demand for the kwacha."

The mission "made good progress with the authorities on establishing new macroeconomic targets for end-December 2016 in order to safeguard macroeconomic policy implementation in the face of rising risks from the humanitarian crisis."
Program extension:
- "To allow time to demonstrate achievement of these targets, the program—which is currently due to expire at end-2016 would be extended through mid-2017."
Ongoing discussions:
- "Discussions on the review including on how to address the country’s challenges and strengthen the authorities’ response to the humanitarian crisis will continue in the weeks ahead, including in the context of the IMF’s Annual Meetings during October 7–9 in Washington."
- "efforts being made by the authorities to address food shortages are continuing."

Public financial management:
- "while some further progress has been made toward reconciling government bank accounts, these efforts need to be sustained in order to restore trust and confidence in the budget."
Meetings and consultations:
- "The mission met with Vice President Saulos Chilima, 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."
Acknowledgment:
- "The mission would like to thank the authorities for their hospitality and constructive cooperation."

IMF Communications Department — Press Release No. 16/435, September 29, 2016.