International Monetary Fund (Washington, DC)

19 February 2013

Malawi: IMF Mission Reaches Staff Level Agreement With Malawi On ECF Second Review

Photo: Lindsay Mgbor/Department for International Development
The strike has increased pressure on President Joyce Banda (File Photo)

press release

Washington, DC — A team from the International Monetary Fund (IMF), led by Tsidi Tsikata, visited Lilongwe during February 5-19, 2013, for discussions on the second review of Malawi's Extended Credit Facility (ECF) arrangement (see Press Release No.12/498).

The mission held discussions with Minister of Finance Ken Lipenga, Minister of Economic Planning and Development Goodall Gondwe, Reserve Bank of Malawi (RBM) Governor Charles Chuka (, Chief Secretary Bright Msaka (Office of the President and Cabinet), Secretary to the Treasury Randson Mwadiwa, and other senior government and RBM officials, representatives of civil society organizations, financial institutions, private sector enterprises, trade unions, and Malawi's international development partners.

The mission appreciates the constructive spirit in which discussions with all stakeholders were held and is grateful to the authorities for their warm hospitality.

At the conclusion of the mission, Mr. Tsikata issued the following statement: "The mission has reached staff-level understandings with the authorities on policies for completing the second ECF review. Consideration by the IMF's Executive Board is tentatively scheduled for late March.  Completion of this review will enable Malawi to receive a disbursement of SDR 13 million (about US$20 million) from the IMF.

"Overall performance under the program has been satisfactory. Most of the quantitative targets for end-December 2012 were met, including those on the level of net international reserves and net domestic assets of the RBM, and the government's net domestic borrowing. However, the indicative targets on reserve money and on government social spending were missed by small margins.

The authorities indicated that after a delay, social protection programs have been successfully scaled up. With respect to structural benchmarks, nearly all identified government domestic arrears have been verified, and progress was made in configuring the Integrated Financial Management Information System (IFMIS) to control government commitments.

"There are encouraging signs that economic recovery is underway, aided by increased availability of foreign exchange, including through the re-establishment of external credit lines. Improved price incentives for tobacco production and good rains so far this season are expected to boost agricultural output and overall growth of the economy in 2013. The devaluation and adoption of a market-determined exchange rate regime last May seems to be stimulating the production of exports and import substitutes while restraining demand for imports.

"At the same time, there is growing public outcry over falling living standards and perceived wasteful spending and fraudulent activities in the government sector. There have also been strikes by civil servants and other workers demanding higher wages. Against that backdrop, the mission discussed with the authorities their policy intentions with respect to addressing growing pressures on the budget. It also discussed the scope for policy actions to stabilize the exchange rate and lower inflation.

"Given the government's limited resources, the mission recommended a tightening of expenditure controls and identification of lower priority activities that can be cut or postponed to make room for higher priorities. In that regard, it welcomed the expenditure control measures announced in December, including a moratorium on government funded external travel (with exceptions to be approved by the Office of the President and Cabinet) and enforcement of the regulation that all procurements of goods and services require purchase orders generated through IFMIS.

"The mission urged the RBM to maintain a tight monetary policy stance until inflation pressures recede, and to strengthen its supervision of banks in order to safeguard the stability of the financial system.

"The mission encouraged the authorities to continue implementing structural reforms designed to remove regulatory hurdles and improve the investment climate, so as to enhance Malawi's external competitiveness and foster sustained, diversified and more inclusive growth."

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