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Malawi off-track, slash MK900 billion budget, GDP growth to fall – IMF

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The International Monetary Fund (IMF) has declared that Malawi’s Extended Credit Facility is off-track, calling for immediate remedial measures to be implemented. The Briton Woods institution has recommended that government should among other things slash the current fiscal year’s MK900 billion budget.

A team from the International Monetary Fund (IMF), led by Mr. Oral Williams, visited Lilongwe September 16–30, 2015 to conduct discussions for the 2015 Article IV Consultations,1 and to discuss progress under the Extended Credit Facility (ECF) arrangement.2 At the end of the mission, Mr. Williams issued a statement:

“The Malawian economy is facing difficult challenges due to  shocks.  As a result, a looming food crisis is expected to negatively impact an estimated 2.8 million persons. Real GDP growth is projected to fall to 3 percent in 2015 from 5.7 percent in 2014, reflecting the steep decline in  addition to weak private sector investment and consumption. Growth in credit to the private sector remains negative in real terms, and declined further in the face of ongoing economic uncertainties, persistently high inflation, and tight bank lending conditions,” reads the statement.

According to the statement, After a period of stability since end-2014, the exchange rate against the dollar weakened from end-June to the beginning of September, before stabilizing. These developments in part reflected the strengthening of the dollar against most major currencies and excess demand for foreign exchange to finance imports.

“Program targets on net international reserves and net domestic assets of the Reserve Bank of Malawi for end June 2015 were met. However, fiscal slippages equivalent to about 2 percent of GDP emerged in part because of overspending on the wage bill, and these were exacerbated by revenue and external financing shortfalls.

As a consequence, the end-June 2015 program target on net domestic financing was not met. On the structural side, structural reforms in the financial sector were carried out as planned.

“The mission reached understandings on measures to bring the ECF-supported program back on track.

“Restoring macroeconomic stability by bringing inflation down to single digits, remains the key precondition to fostering and sustaining growth in the near- to medium-term. To this end, tight monetary and fiscal policies are needed. Given ongoing external financing shortfalls, the budget should be financed in a sustainable manner and expenditures prioritized with a view to safeguard social spending. Planned reforms to the farm input subsidy program aimed at increasing expenditure efficiencies are a welcome step.

“Strengthening public financial management systems is integral to safeguarding public resources and restoring confidence in budgetary processes,” stamps the statement. 

As part of the measure to boast the economy, Addressing existing infrastructure bottlenecks is key to boosting potential growth and creating job opportunities. These include improving transportation infrastructure, electricity supply, the business environment, and access to finance. The adoption of a strong debt management strategy will ensure that public debt remains sustainable as key loans are contracted for strategic projects in this area.

 

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