The International Monetary Fund (IMF) has said that Malawi’s US$150 million extended credit is off-track following the Peter Mutharika government’s failure to meet agreed targets with the fund and that second tranche of funding of about US$20 million under the programme will not disbursed.
This will compound Malawi’s fiscal difficulties and increase pressure on the overvalued kwacha.
The ECF has been derailed mainly by the government’s spending beyond its target.
An IMF team led by Washington DC-based Malawi mission chief, Oral Williams, disclosed during the presentation of their review findings at Capital Hill in Lilongwe on Wednesday.
“Fiscal slippages equivalent to about two percent of the GDP emerged during the second half of the 2014/15 fiscal year, in part because of overspending on the wage bill and these were exacerbated by revenue and external financing shortfalls,” said Williams.
He said: “Corrective measures undertaken to offset the slippages were insufficient. As a consequence, the end-June 2015 program target on net domestic financing was not met.
“On the structural side, structural reforms in the financial sector were carried out as planned, but programmed improvements in public financial management (PFM) were delayed.”
IMF called for restoring macroeconomic stability by bringing inflation—which has been stuck above 20 percent since mid-2012—down to single digits.
“ To this end, tight monetary and fiscal policies are needed. Given ongoing external financing shortfalls, the budget should be financed in a sustainable manner and expenditures prioritized with a view to safeguard social spending,” said IMF.
The global lender said planned reforms to the farm input subsidy program aimed at increasing expenditure efficiencies are a welcome step, while measures to boost revenue mobilization are critical in responding to growing developmental needs.
IMF also pointed out that strengthening public financial management systems is integral to safeguarding public resources and restoring confidence in budgetary processes.
The mission said it met Minister of Finance Dr. Goodall Gondwe, Governor of the Reserve Bank of Malawi Charles Chuka, other senior government and RBM officials, a broad range of national stakeholders outside government, as well as representatives of Malawi’s development partners.
Gondwe, has since admitted that things are out of hand and that a team of experts at his ministry is already working on reducing the budget from K930 billion as approved by Parliament in June.
“We will have to come up with a revised expenditure in the budget,” said Gondwe.
Meanwhile, IMF said Malawi’s economic growth will slow to 3 percent this year from 5 percent in 2014 due to severe flooding in January that affected food production.
The IMF said the slowdown in growth reflected the steep decline in the 2015 maize harvest, disrupted by floods early this year that killed at least 79 people.Follow and Subscribe Nyasa TV :