IMF should learn from Washington’s MCC

Malawi’s high performance in the Millennium Challenge Corporation (MCC) second compact scorecard that has earned it a new $350 million (about K360 billion) package is a reminder of why the International Monetary Fund (IMF) has over the past decades been the subject of stinging criticism from the larger development community or the so-called “development lobby” for its rigid, often hurtful conditionality – centric support to poor countries such as Malawi.

When one looks at Malawi’s MCC compact for scores in the 2022 fiscal year you will find that on balance, Lilongwe has performed well, which explains Washington’s decision to grant the second compact and its effusive praise of the Lazarus Chakwera administration this week.

MCC’s score card has three broad areas; namely: Economic Freedom, Ruling Justly and Investing in people.

Granted, Malawi has failed on key areas under E c o n o m i c Fr e e d o m , specifically on fiscal policy, inflation and business start-up. But the country is above average on regulator y quality, trade policy, gender in the economy, land rights and access although it is average on access to credit.

On ruling justly, Malawi is in the excellent category i n a l m o s t a l l a r ea s , including, yes, control of corruption, political rights, civil liberties, rule of law, freedom of information and has a strong pass on government effectiveness.

Based on the foregoing performance, the United States Government this week hailed the Chakwera administration for his commitment to fighting corruption by strengthening institutions such as the Anti-Corruption Bureau to which Lilongwe has sharply increased funding, dramatically expanded its human resources c a p a c i t y a n d, mor e recently, strengthened its prosecutorial latitude by removing the need for consent from the Director of Public Prosecutions.

Speaking on Tuesday at a Democracy Delivers event hosted by United States Agency for International Development (Usaid ) administrator Samantha Power in New York where Chakwera is attending the 77th Session of the United Nations General Assembly, US Secretary of State Anthony Blinken said Chakwera was doing all he can to ensure the fight against corruption is strengthened, declaring: “America will do all it can to support governments that govern justly”.

In her speech, Power said: “He [Chakwera] has embraced the agenda of fighting corruption while focusing on developing Malawi’s agriculture, mining and tourism sectors.

“Due to recent advances, Malawi will soon sign an MCC compact that offers it significant new resources. MCC calls Malawi one of the best performers on its political and economic scorecard and I spoke with President Lazarus Chakwera about how Usaid can support further gains.”

On investing in people, Malawi’s scores are largely above average, especially on health and primary education expenditures, n a t u r a l r e s o u r c e s protection, immunisation r a tes , g i r l s p r i m a r y education completion rates and child health, which has a strong pass, but needs rapid improvement.

My point is that the MCC is no ordinary body—it has one of the most stringent eligibility criteria for grants globally.

In fact, its performance assessment and results framework is closer to the IMF and actually gets some of the data it uses for evaluation from the fund.

How then does Malawi pass the MCC test, but cannot even be given the benefit of doubt by the IMF for the countr y to secure the fund-supported Extended Credit Facility? Or is there more to the IMF’s stance against Malawi than meets the eye?

I don’t know, but that should be food for thought and maybe more suited to those who understand the politics of multilateral institutions and those well-vested in power plays therein, especially by powerful Western members with specific agendas in certain countries whose administrations they have become uncomfortable with.

But overall, in my opinion, the IMF’s biggest problem is its philosophy, which I think affects its approach to issues prevailing in developing countries.

The fund’s philosophy— which has a strong bias towards free trade, private investment, the pr ice mechanism and steeped in free enterprise and a capitalistic tilt—has seen it concentrate on hard-knuckle economic per formance such as inflation, fiscal policy, public debts, balance of payments, among other indicators as largely rep resentat i ve of a country’s performance.

I t i s t h e f u n d ’ s p h i l o s o p h i c a l underpinnings that make them think, for example, that Malawi’s debt problems are always domestically-inflicted largely by governing incompetence, ignoring the external factors at play that sometimes force countries such as Malawi to immerse themselves deep in debt.

As such, the fund comes up with pre-conditions on debt thresholds, money supply targets, subsidy caps and, yes, devaluation and free-floating of the local exchange rate so that it is determined by market forces.

But how can a debt-stressed, fiscally-squeezed, s t a r v i n g and p r i c e – suffocated country such as Malawi achieve these conditionalities if not by waiving some of them, allow for a new programme to kick in with in-built strong monitoring and sanctioning mechanism to help it on its feet?

Frankly, this kind of rigidity hurts rather than helps IMF member countries. I suspect Washington has come to understand this and that is the approach the US Government under MCC has taken. The fund may wish to borrow a leaf from them.