Press Release No. 04/106

Press Release: Statement by IMF Staff Mission to Malawi

June 4, 2004

A staff team from the IMF visited Lilongwe to meet with the new government and to assess the macroeconomic situation. The mission had very productive discussions with President Bingu wa Mutharika, Reserve Bank Governor Dr. Ellias E. Ngalande, and representatives of the Ministry of Finance and the Reserve Bank of Malawi. The team also met with the donor community.

Malawi's recent economic performance has been mixed. The mission noted that per capita income rose somewhat over the past two years and agricultural production has recovered from drought conditions in 2002, though growth is not sufficient to achieve the Millennium Development Goals (MDGs). Poverty is widespread, and has been worsened by HIV/AIDS and other diseases. The IMF, in cooperation with Malawi's development partners, intends to do what it can to help Malawi address these pressing concerns, with the focus on the Fund's core areas of responsibility and competence.

Since late 2000, the IMF has provided Malawi with approximately US$30 million in financing. This amount was equally divided between emergency assistance related to the 2002 drought and loans from the IMF's Poverty Reduction and Growth Facility (PRGF) in support of the government of Malawi's economic program. Regrettably, Malawi's PRGF arrangement has not moved forward in recent months mostly because of government spending that was outside the 2003/04 budget (July-June) and the supplementary budget approved by parliament in March 2004. Most of the additional spending on goods and services was not pro-poor and it resulted in government borrowing that kept interest rates very high. Fortunately, humanitarian assistance from development partners has not been affected by these budget developments. Nevertheless, Malawi still faces significant fiscal challenges.

The IMF remains committed to helping Malawi achieve macroeconomic stabilization, sustainable growth, and a reduction in poverty, and the staff team looks forward to working with the new government toward these ends. Staff will begin preparatory work with the government on fleshing out a strong adjustment and reform program that could be supported with a new PRGF arrangement. This process would provide low-cost lending to Malawi, form the basis for further external debt relief under the Heavily Indebted Poor Countries Initiative (HIPC), and help unlock donor budgetary support. President Mutharika reiterated his commitments to policies that will establish macroeconomic stability outlined in his inauguration speech and pledged to move forward with plans to reduce unnecessary government spending and bring better services to the poor. The commitments made, when implemented, will go a long way to helping restore discipline in the public sector finances. He underscored that a sustainable reduction in interest rates requires reducing government debt.

The President asked that a full team from the IMF return to Malawi in the near future to map out the best way to move forward. The President assured the IMF team that all efforts were being made to close out the 2003/04 financial year as prudently as possible so that the new economic team could start afresh. His government was already at work on a budget for 2004/05, but would use a provisional three-month spending authorization to ensure that the new plan is in line with both priorities and resources available.