IMF, Malawi Authorities Forge Agreement on Economic Program
The IMF Executive Board is scheduled to consider the agreement in mid-November 2023.
Washington D.C. – In a significant development, the International Monetary Fund (IMF) staff and Malawian authorities have reached a staff-level agreement on key economic measures, including a comprehensive set of macroeconomic and financial policies, write Benson Kamonjola and Winston Mwale.
This agreement also paves the way for a new 48-month financing arrangement under the Extended Credit Facility (ECF), amounting to approximately $174.00 million, pending IMF Management and Executive Board approval and the necessary financing assurances.
At the conclusion of discussions held between August 29 and September 20, 2023, in Lilongwe, Malawi, Ms. Mika Saito, leading the IMF team, issued the following statement:
"The IMF team has reached a staff-level agreement on the Second Review of Malawi's Staff Monitored Program with Executive Board Involvement (PMB) and macroeconomic and financial policies and reforms to be supported by an ECF arrangement. Access under the arrangement could be up to SDR 131.86 million (about $174.00 million), representing 95 percent of Malawi's IMF quota, over a period of four years. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Malawi's partners and creditors."
Ms. Saito acknowledged that Malawi has been grappling with a series of challenges, including a cholera outbreak and the impact of Cyclone Freddy.
Despite these challenges, the country is projected to achieve a real GDP growth rate of 1.6 percent in 2023. However, foreign exchange shortages continue to constrain economic activity, with an anticipated inflation rate averaging 30.3 percent in 2023.
The agreement reflects the Malawian authorities' commitment to fiscal responsibility, as they have adjusted expenditure to counter revenue shortfalls and managed government borrowing prudently.
The Reserve Bank of Malawi has implemented tighter monetary policies to curb inflationary pressures and has resumed foreign exchange auctions.
Nevertheless, rebuilding foreign reserves has been hampered by limited access to trade credit.
Malawi has also actively engaged in negotiations with commercial and official bilateral creditors, even while addressing commercial debt arrears.
The forthcoming ECF-supported program aims to restore macroeconomic stability, foster inclusive and sustainable growth, enhance governance and institutions, and bolster resilience to climate-related shocks.
The fiscal policy under the program will strive to achieve a debt-stabilizing primary balance through a combination of expenditure adjustments and revenue mobilization measures.
The authorities are committed to maintaining fiscal discipline, reducing domestic borrowing, and improving public financial management.
Monetary policy will focus on controlling money supply growth while maintaining positive real interest rates.
The banking system remains stable, although exposure to government securities will be closely monitored.
External sector policies will concentrate on rebuilding official international reserves and facilitating a market-determined exchange rate.
The Malawian authorities are dedicated to enhancing data quality and timely submission of data to the IMF staff.
The IMF Executive Board is scheduled to consider the agreement in mid-November 2023.
As a gesture of appreciation, the IMF staff team paid a courtesy call to His Excellency President Lazarus McCarthy Chakwera and held meetings with key officials, including Minister of Finance and Economic Affairs, Hon. Sosten Gwengwe, and Reserve Bank of Malawi Governor, Dr. Wilson T. Banda, among others.
The IMF mission expressed gratitude for the warm hospitality and constructive discussions during their visit.