## Malawi's Plan to Create a Stable and Sustainable Economy

_IMF News, February 2, 2024_

## Source details

**Canonical URL:** [Malawi's Plan to Create a Stable and Sustainable Economy](https://www.imf.org/en/news/articles/2024/02/02/cf-malawis-plan-to-create-a-stable-and-sustainable-economy)

## Other formats

- [Markdown version](/en/news/articles/2024/02/02/cf-malawis-plan-to-create-a-stable-and-sustainable-economy/index.md)
- [Structured JSON version](/en/news/articles/2024/02/02/cf-malawis-plan-to-create-a-stable-and-sustainable-economy/index.json)
- [Bundle manifest](/en/news/articles/2024/02/02/cf-malawis-plan-to-create-a-stable-and-sustainable-economy/bundle-manifest.json)

## Bibliographic details
- Published: February 2, 2024

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### Program goals
- The IMF Executive Board approved a $175 million Extended Credit Facility (ECF) arrangement to support the government’s commitment to economic reforms.
- Urgent goal: support the authorities’ commitment to restore macroeconomic stability by creating an environment of low or moderate inflation and a stable exchange rate.
- ECF-supported program aims to restore and maintain:
  - sustainable levels of fiscal and current account deficits,
  - an adequate level of gross international reserves,
  - limited debt vulnerabilities.
- Program scope includes making tangible progress on structural reforms in macro-critical areas such as public financial management, developing markets (including the foreign exchange market), and improving governance and institutions while protecting vulnerable households.

### Recent challenges and context
- Longstanding issues: stagnant growth, unsustainable debt, and persistent poverty and food insecurity despite large inflows of official development assistance.
- The past three years have been particularly difficult.
- Sizable external emergency financing—about $690 million in the past three years from the IMF and the World Bank alone—was extended.
- To maintain basic public goods and services, the government borrowed from domestic financial institutions, which resorted to the central bank; the central bank injected more money into the economy, increasing pressure on the exchange rate and prices.
- Specific shocks mentioned: an outbreak of cholera and Cyclone Freddy.

### How Malawi can succeed with the program (policy recommendations)
- Authorities should stay the course on the reform agenda and sustain efforts initiated under the 2022-23 Staff Monitored Program.
- Key policy priorities:
  - Restore and maintain sustainable fiscal and current account deficits.
  - Ensure an adequate level of gross international reserves.
  - Limit debt vulnerabilities and complete external debt restructuring.
  - Implement structural reforms in public financial management, market development (including foreign exchange market), governance, and institutions.
  - Protect vulnerable households during adjustment.
- Facilitate a market-clearing exchange rate on an ongoing basis.
- Sustainable fiscal and current account deficits would help stabilize the exchange rate and prices.

### Role of the international community
- The ECF arrangement signals endorsement of Malawi’s commitment and capacity to implement sound macroeconomic policies.
- The international community, particularly the official sector, is supporting:
  - the debt restructuring process,
  - grants and concessional loans to support the social sector and development spending,
  - technical assistance.

### Debt restructuring progress
- The authorities are in the process of completing their external debt restructuring.
- The country remains in arrears on servicing commercial external debt while discussions continue.
- Creditors have given assurances to support the country; Malawi critically needs immediate debt relief to maintain provisions of basic public goods and services.

### November 2023 devaluation
- The devaluation (in November 2023) was a difficult policy decision that imposed short-term hardship on the population.
- Rationale: Malawi has been importing more than it exports by borrowing abroad; as borrowing became difficult, foreign exchange shortages emerged.
- First step to ease the imbalance: allow the exchange rate to be more in line with demand and supply.
- Going forward: facilitate a market-clearing exchange rate and sustain fiscal and current account balances to stabilize the exchange rate and prices.

### Next steps and program implementation
- Semi-annual reviews will assess progress on agreed economic and financial policies.
- The first review is expected to take place in late-July.
- Funds approved under the ECF arrangement will be disbursed after successful completion of each review.
- Each review is expected to further catalyze additional grant financing and capital inflows.
- The IMF team recently visited Blantyre and Lilongwe to take stock of developments and will remain engaged throughout the program period.

*Content based on IMF Country Focus interview with Nelnan Koumtingue, IMF Resident Representative in Malawi (February 2, 2024).*

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## References

- [PRESS RELEASE](https://www.imf.org/en/News/Articles/2024/01/25/pr2428-malawi-imf-staff-concludes-visit)
- [FAQs ON MALAWI](https://www.imf.org/en/Countries/MWI/malawi-qandas)
- [MALAWI AND THE IMF](https://www.imf.org/en/Countries/MWI)
- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [Extended Credit Facility (ECF)](https://www.imf.org/en/Publications/CR/Issues/2023/11/22/Malawi-Second-Review-Under-the-Staff-Monitored-Program-with-Executive-Board-Involvement-and-541708)
- [2022-23 Staff Monitored Program](https://www.imf.org/en/Publications/CR/Issues/2022/11/23/Malawi-Request-for-Disbursement-Under-the-Rapid-Credit-Facility-and-Request-for-a-Staff-525884)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2024/02/02/cf-malawis-plan-to-create-a-stable-and-sustainable-economy_