By Dipo Olowookere
A team from the International Monetary Fund (IMF), led by Mr Oral Williams, visited Lilongwe from March 8–23, 2017, to conduct discussions on the ninth and final review under the Extended Credit Facility (ECF) arrangement.
At the end of the visit, Mr Williams said, “Malawi, with the help of development partners, effectively addressed the worst humanitarian crisis in the country’s history.”
He pointed out that the crisis was caused by the second consecutive year of the El Niño-induced drought that placed an estimated 6.7 million people—or 40 percent of the population—at risk of food insecurity.
The intervention helped stabilize maize prices, as evident in recent weeks, and alleviated the adverse impact of the drought on the vulnerable population. The authorities have expressed gratitude for the support of the IMF and development partners for their sizable contributions in addressing the humanitarian crisis, he said.
According to him, “Malawi’s economy was hit hard by the negative impacts of the drought, but the economic outlook is improving with better prospects of agricultural output including the maize harvest.”
“Real GDP growth after two consecutive years of drought, fell below 3 percent in 2016 but is expected to pick up in the range of 4 to 5 percent in 2017.
“The consumption-led recovery is expected to be driven mainly by a rebound in the agriculture, wholesale and retail, and telecommunications sectors.
“Annual inflation has now fallen to 16.1 percent (year-on-year) in February 2017—its lowest level in recent years.
“Both food and non-food inflation rates have contributed to the downward trend, reflecting prudent monetary and fiscal policies and the stabilization of food prices on account of humanitarian response,” Mr Williams said.
He said further that, “Tight monetary policy, which kept short-term money market rates positive in real terms and stronger fiscal management, was key to restoring confidence in the exchange rate that has remained stable. Commitment to the flexible exchange rate regime and the automatic fuel pricing mechanism continued to help Malawi to respond to external shocks as evidenced by the foreign exchange reserve cover that stabilized at about three months of imports.
“The team reached staff level understandings with the authorities to ensure that recent improvements in macroeconomic policy and outcomes are sustained. Solidifying the gains in macroeconomic stability by limiting spending to available resources and safeguarding external and financial sector stability will continue to be the key policy objectives in the near term. Prudent fiscal policy, when combined with monetary policy geared toward maintaining positive real interest rates, should facilitate the achievement of the program’s objective of single digit inflation. Discussions also focused on measures to ensure that progress in public financial management reforms is sustained.
“Discussions also focused on the broad parameters of the FY17/18 budget. In so doing, the team emphasized the need consolidate recent improvements in revenue mobilization to contain current expenditures and reorient the budget toward development spending in order to improve resilience and to address critical infrastructure gaps. The team also underscored the need to clear past arrears, implement expenditure commitment controls to prevent their re-emergence and to safeguard debt sustainability in light of the increase in the level of domestic debt.
“Completing bank reconciliations for FY15/16 is critical for presenting the review to the IMF Executive Board. Based on progress to date, it is anticipated that a request to complete the ninth review under the ECF-supported program could be submitted for consideration by the Executive Board in June 2017. The team would like to thank the authorities for their hospitality and constructive cooperation.
“The team met with President Arthur Peter Mutharika, Minister of Finance Goodall Gondwe, Governor of the Reserve Bank of Malawi (RBM) Charles Chuka, other senior government and RBM officials, a broad range of national stakeholders outside government, as well as representatives of Malawi’s development partners.”
