International Monetary Fund (IMF) has describe the macroeconomic performance of Malawi’s economy under the IMF-supported Extended Credit Facility (ECF) as a “mixed bag”.
The mission which was in Malawi for assessment, says the Peter Mutharika administration faces a daunting task of turning around the fortunes of the economy due to ” high interest cost of domestic debt and the need to address a significant accumulation of domestic payment arrears.”
Said IMF: “In the face of such a tight budget constraint, fiscal discipline will be critical to ensuring that spending is kept in line with available resources. In this regard, the authorities intend to make some of their budgetary outlays in Fiscal Year 2014/15 contingent on disbursements of external assistance from Malawi’s development partners.
“While it is likely that some domestic borrowing may be needed this year to ensure delivery of basic services and avoidance of new payment arrears, it is important that these amounts be limited so as to lend support to the disinflation effort and preserve international reserves.”
The IMF mission has since completed its two week long assessment of the ECF.
IMF Mission Chief Tsidi Tsikata says targets for international reserves were comfortably met, but Malawi failed to score highly on net domestic assets of the central bank and net domestic borrowing by the government.
Finance Minister Goodall Gondwe admits the government faces a “serious challenge” to manage the debts but is confident that things will turn around.
Meanwhile, negotiations between the IMF team and the Malawi Government on the next disbursement of cash amounting to MK8.3 billion under the ECF will start in October, 2014.
In January, IMF rated Malawi macroeconomic performance under its programme as “broadly satisfactory.”
But the global lender called on Malawi to restore confidence in the authorities’ management of the economy by cracking down on rampant corruption and Cashgate scandal.
Revelations of corruption led the country’s key donors to withhold millions of dollars in budget support and to demand that government should investigate and prosecute those involved in stealing state funds.
Foreign aid has traditionally accounted for about 40 percent of the national budget.
The scandal, forced the government to shut down its payment system last year to investigate allegations that billions had been stolen by officials since 2005.
IMF said it “strongly supports” the Mutharika government’s intention to continue reforms in public financial management and welcomes the plan to consolidate the diverse reform elements under one organizational structure.
“Aggressive implementation of the strategy, well coordinated with other stakeholders, has the potential to deliver the improvements needed to protect public resources, improve the efficiency of their allocation, and re-establish a degree of public confidence and trust,” said IMF.
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