The International Monetary Fund (IMF) has disbursed some $20 million after completing the first review of the country’s economic performance under a programme supported by the Extended Credit Facility (ECF).
This brings the total disbursements under the programme to an amount equivalent to $40.1 million.
According to an IMF press release, the Fund’s Executive Board, in completing the review, approved a request for a waiver of the non-observance of the end-September 2012 performance criterion on the level of net domestic assets of the Reserve Bank of Malawi (RBM).
“The three-year ECF arrangement for Malawi in the total amount of about $156.2 million was approved on July 23, 2012,” read the press release.
The statement quoted Mr Naoyuki Shinohara, deputy Managing Director of the Fund, as saying: “Drought in parts of Malawi lowered overall growth in 2012, and threatened the subsistence of nearly 2 million people.
“A spike in food prices and the continuing depreciation of the kwacha contributed to a surge in inflation. The external economic environment has also been more difficult than anticipated. Despite these challenges, performance under the Fund-supported program has been satisfactory.”
Mr Shinohara also noted that the tight monetary and fiscal policies are needed now to stabilise the exchange rate and curb inflation.
“Accordingly, the Reserve Bank of Malawi (RBM) has appropriately discontinued a temporary facility for uncollateralised lending to banks and increased the policy rate in early December. Fiscal policy is also playing a role, including with the reactivation of the automatic adjustment mechanism for fuel prices which has cut untargeted subsidies that mainly benefit the better off,” he observed.
He also said the bulk of the additional external financing provided by Malawi’s development partners will allow the government to increase outlays on social protection programs without increasing domestic borrowing.
“Although the authorities are well advised to save a portion of those grants to build up international reserves from very low levels….the RBM has stepped up its oversight of banks with a view to addressing emerging threats to the stability of the financial system. It is paying particular attention to ensuring that banks facing persistent liquidity problems implement restructuring plans that put them back on a sound financial footing,” he said.
Mr Shinohara also said the authorities are making good progress in implementing a wide range of structural reforms.
“On the budget side, reforms focus on strengthening tax and customs administration, as well as improving public financial management through greater expenditure control and the prevention of arrears. The authorities have also committed to removing regulatory hurdles to improve the investment climate and foster sustained and broad based growth,” he observed.
As part of the discussion on the implementation of the Extended Credit Facility (ECF), the IMF early this year asked the government to, among other things, devalue the kwacha. However, the then leadership refused to devalue the currency.