IMF says Mutharika rebuilding trust after cashgate destroyed Malawi’s macroeconomic outlook

The International Monetary Fund has said after it resolved to immediately disburse about $18.1 million (K7.6 billion) to Malawi, one of Africa’s poorest economies , that new government of President Peter Mutharika has committed to rebuild trust in public institutions after the 2013 cashgate scandal saw the country losing about K20 billion r of public funds through looting, theft and corruption.

The IMF imposed the suspension last quarter of 2013 following revelations that top government officials looted billions from government coffers in a cashgate scandal.

The scandal saw the country with almost 37 per cent of its budget coming from foreign support losing financial support and aid injection from IMF and other western countries.

In a statement after approving the resumption of aid to Malawi Mitsuhiro Furusawa, IMF Acting Chair and Deputy Managing Director said the new government [of President Peter Mutharika] has committed to rebuild trust in public institutions.

“The new administration is committed to rebuilding trust in public institutions and bringing the IMF-supported program back on track, including through maintaining a flexible exchange rate regime and the automatic fuel pricing mechanism,” said the fund.

The IMF says the breach of governance resulted in the suspension of budget support from donors, which has led to increased recourse to central bank financing, accumulation of domestic arrears, exchange rate depreciation, and high inflation.

According to the fund, Malawi’s macroeconomic outlook and performance under the IMF-supported programme was significantly damaged by a large scale theft of public funds and by policy lapses in the run-up to elections but the Fund is positive about the current administration.

The fund added that bringing inflation down to single digits and boosting official foreign exchange reserves remain key policy objectives.

Meanwhile, the National Statistical Office (NSO) in Zomba has said Malawi year-on-year headline inflation for February 2015 as measured by the consumer price index (CPI) eased 1.5 percentage points to 19.7 percent buoyed by the drop in food and non-food prices.

In the monthly Stats Flash, NSO said: “Overall, food inflation stands at 19 percent from 21.5 percent in January 2015. Although food prices have gone up, the rate of increase is much lower than the corresponding rate in the same period last year.”

University of Malawi’s Chancellor College economics professor Ben Kaluwa said since the country is heading towards the harvest period, inflation rate is expected to fall further.

IMF has called on Malawi government to address weaknesses in public financial management in order to restore confidence in the budget process and foster donor re-engagement.

“The authorities’ steadfast implementation of a comprehensive strategy in this area remains an urgent policy priority,” added the fund.

“The central bank is committed to tightening monetary policy as needed to keep inflation on a downward path. Measures taken in late 2014 have already helped reduce liquidity and stabilize the currency. Steps underway to curb deficit financing by the central bank should enhance the credibility of monetary policy.”

The fund said improved prudential and regulatory frameworks are key to safeguarding the financial sector’s stability and supporting growth adding that the recently-completed diagnostic assessments of the banking system will be used to design a strategy to address sector-wide issues.