Last week the Minister of Finance, Economic Planning and Development had a sigh of relief when the International Monetary Fund (IMF) mission completed its review of the performance of the Malawian economy. With the news that “a request to complete the seventh and eighth reviews under the ECF-supported program could be submitted for consideration by the IMF’s Executive Board in May 2016” based on progress to date, there is jubilation and some blotted expectations from some quarters.
Listening to a phone-in radio program on Thursday, I was shocked by some of the comments. Some callers expressed high expectations that prices of goods would come down. One caller was however very skeptical; “We know these people (IMF), they know we are about to sell our tobacco and are here just to steal from us”. This clearly shows that most people have no understanding what the ECF-supported program of the IMF really means.
What is the Extended Credit Facility – Supported Program?
In basic terms, the ECF-supported program is like an economic drip that the IMF puts on “economically sick nations” to help them recover, mainly supporting the balance of payments (BOP). It is a form of financial assistance to countries with protracted (prolonged) balance of payments problems, aimed at helping them move toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.
Let us say Malawi produces goods and sells them to other nations for $100m but at the same time imports goods worth $150m; this means the country will have a negative BOP equal to $50m. The ECF therefore helps Malawi to pay off the balance because it failed to generate enough from its export revenue. As you can see, the ECF is simply a temporary economic relief to help an economically sick nation.
What Should We Do to be Discharged?
The real solution for our sickness is to increase productivity and exports so that we do not have perpetual BOPs challenges. There a number of practical solutions we can employ and below are a few suggestions:
- Stop Talking Irrigation and DO Irrigation: The debate on irrigation has dragged on for too long. Let us now implement BIG time. The Economics Association of Malawi (ECAMA) in its pre-budget contributions in the past five years has been consistent; Dedicate K20bn each year from the national budget for five years and invest into irrigation infrastructure. By now we should have had K100bn worth of irrigation infrastructure that can boost our agriculture output.
- Trim the Civil Service: According to the statement released by IMF mission, there is need to exercise restraint on the wage bill “which now accounts for about 34 percent of revenues”. The public sector reforms will not be effective if we do not deal with this “sacred cow”. I know it doesn’t look like a comfortable and politically safe choice to make, but unfortunately, most medicines are not sweet. We used to drink Quinine not because it was sweet, but because it was the medicine that could heal malaria then. Trim the civil service.
- Reduce Public Expenditure: We have a bicycle economy with limousine appetites. We want to drive in V8 engines like kings and princes of an oil-rich economy. We want to maintain every state house that Kamuzu had when we can’t even buy anti-biotic in our hospitals. We need to learn to cut the cloth according to our size. Ministers can do with a Toyota Rav 4 or Nissan X-Trail. The Vice President can do with just one official residence. The president must come down from the ivory tower and live closer to his people.
- Incentivize Private Sector: If indeed the private sector is the engine for economic growth, then I am afraid this engine is about to knock as it has not been oiled for some time. Government must clear off it arrears with private sector so that it has the liquidity to produce more. Help the Small and Medium Enterprises (SMEs) to grow by buying from them. It is good news that the President declared that government will be buying at least 30% from Malawian businesses. Let this be implemented and not just become another rhetoric.
- Re-introduce Youth Week: It is disheartening that some of the loans we have from the African Development Bank (ADB) included resources for construction of public toilets. Those of you that are old enough know that as students we used to construct our own toilets, build teachers’ houses and classroom blocks during Youth Week. We need to bring back the spirit of self-reliance so that we reduce borrowing on things we can do ourselves.
- Seal-Off Leakages: There is too much hemorrhage of our limited resources. About two weeks ago, the high court in Blantyre awarded a South African Geologist $100m (about MK69bn) in compensation for some “crooked deals” a few politicians and civil servants did more than a decade ago. This amount, if it is to be paid, will derail our economic recovery plans for years. The amount is more than Malawi Revenue Authority (MRA) collects in taxes in a month. It is three times what we lost during cashgate.
- Let us be Discharged, Please: For the past 50 years, Malawi has been frequently admitted in the “IMF Intensive Care Unit (ICU)”. Being declared back on track with the IMF – ECF should never be a cause for celebrations for it basically mean a patient who is back in ICU. We must aim for a full recovery and discharge. Mozambique, Tanzania and Rwanda are examples of African countries that were discharged from the IMF – ICU. We can do it and let this be our final time in the ICU.