Press Release No. 19/76

Statement at the End of an IMF Staff Visit to Malawi

March 14, 2019

• The mission and the authorities had productive discussions on the second review under the Extended Credit Facility arrangement.
• These discussions will continue in the weeks ahead, including in the context of the IMF’s Spring Meetings during April 12–14 in Washington, D.C.
• Performance under the program has been good, but more efforts are needed to ensure fiscal sustainability.

An International Monetary Fund (IMF) team led by Pritha Mitra, Mission Chief for Malawi, visited Lilongwe from March 5-15, 2019 to conduct discussions on the second review of the three-year arrangement for Malawi under the Extended Credit Facility (ECF) for SDR78.075 million or about US$112.3 million (see Press Release No. 18/157).

At the end of the mission, Ms. Mitra issued the following statement:

“Malawi’s economic outlook is favorable. Economic growth is projected to reach about 5 percent in 2019 supported by a rebound in agriculture and some improvement in electricity generation. Over the medium-term, growth could rise further to 6-7 percent, driven by infrastructure projects—including electricity generation—crop diversification, greater access to finance, and an improved business climate. Inflation is expected to ease to around 8 percent at end-2019 and gradually converge to 5 percent over the medium term.

“Performance under the program has been good. All but one of the quantitative performance criteria (QPC) for end-December were met. The target on the primary balance (i.e., fiscal balance that excludes interest payments) was missed largely due to front-loading of budgeted expenditures and increases in spending to hold elections. Two structural benchmarks were completed on time and most of the rest were met with a short delay. This was partly owing to capacity constraints in automating public finance management, which are being addressed.

“Looking ahead, fiscal policy should continue to focus on actions to ensure fiscal sustainability. To this end, fiscal consolidation should be accelerated in the upcoming fiscal year (FY 2019-20). Key reform areas are to improve debt management and public financial management—including undertaking regular bank reconciliations, improving commitment control and cash management, and enhancing the transparency of the budget process—and improving revenue administration.

“The authorities have an ambitious plan for infrastructure projects that aims to support sustainable growth and poverty reduction. In implementing these projects, it will be important to ensure that their financing preserves debt sustainability and contains fiscal risks. Strengthening public investment management—including through rigorous prioritization of projects and an improved project management framework—as well as oversight and monitoring of state-owned enterprises and other parastatals will be critical to achieving this goal.

“Monetary policy continues to focus on maintaining single-digit inflation. The banking system’s resilience is improving as reflected in reduced non-performing loans and increased provisioning. Credit to the private sector has increased, but structural barriers, such as challenges in property rights, must be addressed to sustainably increase access to finance. The newly adopted RBM Act has enhanced the RBM’s autonomy. As a next step, the RBM could continue gradually reducing its holdings of government securities.

“The mission and the authorities had productive discussions on the second review under the ECF arrangement, and these discussions will continue in the weeks ahead, including in the context of the IMF’s Spring Meetings during April 12–14 in Washington, D.C.

“The team met with Minister of Finance Goodall Gondwe, Governor of the Reserve Bank of Malawi (RBM) Dalitso Kabambe, other senior government and RBM officials, a broad range of non-governmental stakeholders, as well as representatives from Malawi’s development partners. The IMF team thanks the authorities for their warm hospitality, strong cooperation, and constructive discussions.”