The approval follows the IMF boss meeting in Washington DC on Monday April 30 2018 and enables an immediate disbursement of about US$16 million. The remaining amount will be phased over the duration of the program, subject to semi-annual reviews.
IMF board based its decision on the country’s microeconomic stability as a catalyst for economic growth.
“Malawi has shown progress in achieving macroeconomic stabilization following two years of drought, with a rebound in growth and inflation reduced to single digits. However, the fiscal position has deteriorated and the public debt to GDP ratio has risen. Increased debt service pressures have reduced space for needed infrastructure and social spending,” said IMF Deputy Managing Director Tao Zhang, in a statement after the board approval.
The new ECF program will focus to stabilise foreign exchange rates. interest rates, among others for the country to register high levels of growth.
“The medium-term economic outlook is favorable, with private sector activity expected to benefit from better infrastructure and an improved business climate. Progress will depend on the authorities’ strong ownership to support successful implementation of their program.”
Minister of Finance, Goodall Gondwe described the development as “very positive” because it “signals” that the country is on the right track with the economic agenda and “will help push for the much needed return of budget support.”
He said: “We [Malawi] are one of the few countries in the southern African region which has received the [IMF] nod. Among other things, the programme has been looking at government borrowing and management of foreign reserves, areas where we have done well.”
Malawi last ECF program valued at US$156.2 million which was approved in 2012, expired in 2017.
Meanwhile, the IMF has advised government to enhance transparency in its budget process as well as strengthen its medium term budgetary framework and cash management.
IMF representative in Malawi Jack Ree said as things stand now, the possibility of donors bouncing back cannot be ruled out.
Gondwe assured the government with continue its positive strides in the area of public finance management to prevent the misappropriation of public funds and rebuilding trust and confidence in the budget process.
Incessed by revelations of mismanagement of public funds at Capital Hill, widely known as Cashgate in 2013, Malawi’s key donors—who historically contributed about 40 percent to the recurrent budget—withdrew their direct budgetary support worth $150 million, leaving behind a huge fiscal gap.
To date, the donors, some of whom have described the Malawi Government Account Number One as “a leaking budget”, have since been assisting Malawi through off-budget support mechanism.
With the budget session starting on May 4, IMF has since advised Malawi to enhance transparency in the whole budget process as well as strengthen the medium term budgetary framework and cash management.
The ECF programme is aimed at achieving and maintaining macroeconomic stability and implementation of policies and structural reforms to spur growth, diversify the economy and reduce poverty.
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