Press Release No. 14/15

Press Release: IMF Executive Board Completes Third and Fourth Reviews Under the Extended Credit Facility Arrangement for Malawi and Approves US$ 20Million Disbursement

January 17, 2014

The Executive Board of the International Monetary Fund (IMF) today completed the third and fourth reviews of Malawi’s economic performance under a program supported by the Extended Credit Facility (ECF) arrangement. The Board’s decision enables the immediate disbursement of an amount equivalent to SDR 13.01 million (about US$ 20million), bringing total disbursements under the arrangement to an amount equivalent to SDR52.06 million (about US$79.8 million).

In completing the reviews, the Board granted waivers for the nonobservance of the continuous performance criterion on new nonconcessional external debt with a maturity of more than one year, and for the nonobservance of the end-September, 2013 performance criteria on government net domestic borrowing and on the net domestic assets of the Reserve Bank of Malawi (RBM.). The Board also approved an extension of the arrangement by four months (to November 2015), and a rephasing of disbursements.

The three-year ECF arrangement for Malawi in the total amount of SDR 104.1 million (about US$156.6 million) was approved on July 23, 2012 (see Press Release 12/273).

Following the Board’s discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:

“Malawi’s macroeconomic performance under the IMF-supported program has remained broadly satisfactory and the policy reforms initiated in May 2012 are showing positive results. The recent fraud and misappropriation of substantial amounts of public funds and the associated loss of programmed financial aid has negatively affected the macroeconomic outlook. To restore confidence in the authorities’ management of the economy, it will be important for the government to investigate the fraud thoroughly and to implement the Action Plan to address the weaknesses in public financial management exposed by the fraud.

“The authorities are committed to closely monitor expenditure execution and financing to prevent a recurrence of the fiscal slippage that resulted in a substantial increase in domestic borrowing during the first quarter of the 2013/14 fiscal year. They stand ready to act swiftly with more stringent expenditure restraint and expenditure reprioritization to protect social spending in case downside risks to domestic revenues and external financing materialize.

“Continued tight monetary policy and fiscal restraint are needed to stabilize the exchange rate and reach the target of single digit inflation by end-2014. The Reserve Bank of Malawi is committed to improving its oversight of the financial sector in order to safeguard financial stability.

“Malawi contracted nonconcessional external debt in 2013, resulting in the non-observance of a performance criterion under the ECF-supported program. This gave rise to a noncomplying disbursement following the completion of the second review under the ECF arrangement. The authorities are committed to strengthening the monitoring of the concessionality of new external loans and to enhance the sharing of information on external loans with IMF staff to ensure that the terms of external loans are in line with commitments under the program. In view of the corrective actions taken by the authorities, the Board decided to waive the non-observance of the performance criterion that gave rise to the noncomplying disbursement.”