IMF gives JB boost, hails Malawi ‘progress’ after Cashgate
The International Monetary Fund (IMF) said Thursday Malawi has made progress in addressing governance and public financial management weaknesses after a massive government corruption scandal christened by the media as “Cashgate”.
Cashgate scandal forced the government to shut down its payment system last year to investigate allegations that about K13 billion state funds had been stolen by officials.
President Joyce Banda, who faces an election on May 20, called for a forensic audit backdated to 2005 that would help reveal the extent of corruption in the country. And another audit report shows K92 billion was abused between 2010 and 2012.
Banda’s administration adopted an action plan to crackdown on corruption and wrongful self-enrichment in the wake of missing billions ast year that prompted Western donors to freeze $150 million in aid.
In a statement issued Thursday, the IMF praised Banda government for making progress in addressing governance and public financial management weaknesses “including through implementing the government’s Action Plan.”
The IMF statement issued by IMF’s mission head for Malawi, Tsidi Tsikata, came at the end of its latest review mission to the country.
“Going forward, it will be important to adapt the Action Plan into a strategic and comprehensive [public financial management] reform program, including by reflecting the findings and recommendations of the preliminary forensic audit report government received in February 2014,” said the IMF in the statement.
The IMF said the Reserve Bank of Malawi (RBM) should “tighten monetary policy more aggressively”, noting that inflation remains high at nearly 25 percent.
The statement said IMF urged action to bring soaring prices under control.
“The mission welcomes the accumulation of international reserves by the RBM and its plans to further boost the level of reserves during this year’s tobacco season in order to provide the economy with a buffer against exogenous shocks. This will also allow the RBM to effectively intervene in the foreign exchange market to manage excessive volatility in the exchange rate arising from the highly season pattern of private foreign exchange inflows,” it said.
The IMF said it will return in June for another review that will pave way for the disbursement of a $20-million credit facility.
“Since the budget will be submitted to parliament by the government that will be formed after the May 20 elections, the mission proposes to return to Lilongwe in June to confirm the understanding reached during this mission, before it submits its report to IMF management and the Executive Board. Completion of the review would enable Malawi to receive a disbursement of SDR 13 million (about US$20 million) from the IMF,” said the statement.
The IMF noted that against the backdrop of the suspension of aid due to the “cashgate” scandal, fiscal policy has been “appropriately restrained” and has contributed to stabilizing the exchange rate.
However, it pointed out that the resulting expenditure compression has taken a heavy toll on the delivery of public services.
“Overall fiscal conditions will remain tight for the remainder of the fiscal year 2013/14, but strong revenue performance and the release of some external financing will allow some relaxation of the stringent constraints observed over the past two quarters,” it said.
Banda, who took office in April 2012, implemented austerity measures that led to a restoration of a $79 million IMF aid programme suspended due to a conflict with her predecessor Bingu wa Mutharika.
Mutharika, who died in office in April 2012, was widely criticised for a poor human rights record and mismanaging the economy.
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