The Executive Board of the International Monetary Fund (IMF) on Monday completed the second review 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 about US$19.6 million bringing total disbursements under the arrangement to an amount of about US$58.7 million.
The three-year ECF arrangement for Malawi in the total amount of about US$156.2 million was approved on July 23, 2012.
IMF Board’s First Deputy Managing Director and Acting Chair, David Lipton says in news release issued on Monday which Nyasa Times possess that the approval is because of the Malawi’s impressive economic performance in the recent past.
“Malawi’s performance under the fund-supported program has been commendable despite a difficult environment. The policy reforms have begun to yield positive results, including increased availability of foreign exchange. The government also successfully rolled out its social protection programs,” he says.
Lipton says continued tight monetary policy and fiscal restraint are however needed to contain aggregate demand, stabilize the exchange rate and prices, and boost international reserves.
He observes that the Reserve Bank of Malawi (RBM) is committed to maintaining a tight monetary stance until inflation pressures recede.
“The fiscal authorities are also committed to implementing prudent policies in the run up to the 2014 general elections. In particular, the financial year 2013/14 budget will include measures to offset the impact of recent wage increases on the budget. The authorities are also pursuing reforms to broaden the tax base, improve revenue administration, and exercise greater control over expenditures”, said Lipton.
He says it will be important to safeguard the stability of the financial system hinting that the RBM is strengthening its oversight of banks and is assessing the true financial condition of all banks with a view to enforcing prudential regulations.
“It has also enhanced its monitoring of banks that have continued to have difficulty meeting liquidity requirements. The authorities are making progress in implementing structural reforms to enhance the country’s competitiveness and exports. They are committed to removing regulatory hurdles to doing business in Malawi,” he observes.
IMF suspended ECF in 2011 over what they called failure by then ruling Democratic Progressive party government led by the late president Bingu wa mutharika to adhere to conditions attached to the fund which included the devaluation of Malawi Kwacha.
But Mutharika claimed devaluation would have devastating effects on the populace and cited as an example of the 10% devaluation he made earlier upon instruction from the IMF which resulted in a sharp increase in the prices of goods and services.
But President Joyce Banda who came into power after the death of Mutharika saw devaluation as ‘necessary evil’. She devalued the kwacha by almost 50% and later floated it. As a result the cost of basic goods rose dramatically pushing the inflation rate well above 35 percent.Follow and Subscribe Nyasa TV :