Former president Joyce Banda and her People’s Party (PP) government were voted out of power in 2014 at the height of Cashgate corruption scandlewhich involved the systematic pilferage of government money by crooked politicians, civil servants and their private sector accomplices. It involved the plunder of public resources at Capital Hill through inflated invoices, dubious payments for goods or services not rendered.
Among some of the consequences of CASHGATE was the suspension of direct budgetary support to Malawi by the country’s development partners such as the European Union in October 2013. Malawi’s last Extended Credit Facility with the International Monetary Fund (IMF) program valued at US$156.2 million which was meant to cushion the country from economic shocks such as dry spells and floods also went off the rails over the same poor public finance management concerns.
These sanctions were in full force when Peter Mutharika and his DPP government were ushered into office in May 2014 after winning the tripartite elections. The first port of call was to fix the economy which was in a broken state as a result of CASHGATE and its aftermath. Over the past four years, the DPP government has been working tirelessly to balance macroeconomic factors so that the economy is brought back to working order again.
One of the facilities Mutharika and the DPP government have been working to bring back on track is the Extended Credit Facility (ECF), which is a comprehensive credit program with IMF. To qualify for the facility a country must demonstrate prudent economic management by, among other things, putting in place all macro-economic variables and also ensuring that they are working to achieve positive economic growth.
Over the past four years, Malawi has demonstrated sustained diligence in the management of its economy. Among other things, the Peter Mutharika government has maintained a sustained annual GDP growth of over 4% by ensuring investment in priority areas such as commercial agriculture and tourism.
It was therefore not surprising to hear that on April 30, 2018, the Executive Board of the IMF approved a US$112.3, which is equivalent of 56.25 percent of Malawi’s quota in the IMF, to support the country’s economic and financial reforms over the next three years. According to the IMF, the facility aims at “entrenching macroeconomic stability and foster higher and more inclusive and resilient growth”.
Among the reasons that IMF gave for approving the facility were that “Growth picked up from 2.3 percent in 2016 to an estimated 4.0 percent in 2017 owing to a recovery in agricultural production”. Its Deputy Managing Director and also Acting Chair, Mr. Tao Zhang, said: “Malawi has shown progress in achieving macroeconomic stabilization following two years of drought, with a rebound in growth and inflation reduced to single digits.
Based on this performance by the Mutharika government, IMF hopes economic growth in Malawi will be further achieved through fiscal consolidation and long-term debt sustainability. It also hopes that inflation will further be containing and that the country will focus its policies on reducing poverty and resilient growth by raising the amount and quality of spending on critical infrastructure and social sectors plus tackling governance challenges.
This will also include improved public financial management and procurement; improving financial intermediation and strengthening access to finance as well as advancing critical growth-supporting structural reforms. When combined with continued strengthening of the monetary policy framework, the IMF hopes that these efforts will contain inflation and reduce fiscal dominance, which will ultimately raise the amount and quality of spending on critical infrastructure and social sectors
This level of hope from the IMF is without doubt stemming from the fact that the Malawi government has been able to satisfy the laid down conditions in order to qualify for the credit facility. This is also the reason why in its statement, the institution has spelled out these combined performance indicators that Malawi should further satisfy to qualify for the next tranche within the ECF.
As is usually the case, the naysayers have been all over the social and mainstream media trivializing the ECF resumption to Malawi as a non-issue, and not something worth celebrating about. They argue that ECF is just like any other credit facility which still piles debt pressure on the shoulders of the country to be repaid in the long run probably by our children and grandchildren.
However, the naysayers must realize that the resumption of this credit facility did not materialize from the sun. The IMF did not just woke up and decided to resume the ECF facility on its own accord or out of sympathy for Malawi, no, the country had to go through a rigorous due process that depended upon the achievement of defined macro-economic variables. The Mutharika government had to meet these stringent performance targets to qualify for the facility, and that is also why some countries have failed to qualify for same.
Like Goodall said, the DPP administration must be commended for an economic performance that has made it possible for the resumption of ECF to occur because that is only the logical thing to do under the circumstances. Granted, challenges still abound for this country to achieve the economic nirvana that it seeks, in fact with an annual economic growth of 4%, it will take a long time for this country to really uplift a majority of its citizens from the jaws of poverty.
In fact in the statement that: “the fiscal position has deteriorated and the public debt to GDP ratio has risen”, the IMF attests to the fact that there are challenges that must be surmounted for this country to achieve the needed economic development. The board however acknowledged the efforts that the country is investing to address the challenges when it said that, “the authorities are making efforts to entrench macroeconomic stability, raise growth and reduce poverty”.
We must understand, however, that a thousand steps start with the first step. This country is coming from the days of CASHGATE when we lost the trust of donors resulting in the suspending of budgetary support; we were at zero. Apart from just celebrating the ECF alone, the resumption of this credit facility must also be celebrated in that its successful implementation will also serve as a green light for more aid and investment to be unlocked for Malawi. This credit facility may therefore be indicative of the immanence of the resumption of budgetary support from bilateral partners and therefore cause for celebration.Follow and Subscribe Nyasa TV :