It is now a week since Malawi’s four-year $175 million Extended Credit Facility (ECF) with the International Monetary Fund (IMF terminated automatically after going 18 months without a review.
Malawi Government stated that the suspension or “lapse” of the ECF, whose approval was wildly celebrated in November 2023 as a game-changer, was a result of a mutual agreement between the Bretton Woods institutions and Lilongwe. On the other hand, the IMF, in its update on Malawi’s ECF said the programme expired and that the fund was now engaged in Article IV consultations with the Malawi Government.
In other words, the IMF will continue to work with Malawi through provision of technical assistance to help in shaping economic policies, strengthening institutions and their capacity to implement reforms.
From the two statements, one gets the picture that things fell apart along the way and what needs to be done moving forward is going back to the drawing board to recast and see how best the economy can be stabilised.
I found the reactions from President Lazarus Chakwera—who prior to the sealing of the collapsed ECF made several trips to Washington DC to lobby the IMF, including meeting managing director Kristalina Georgieva—Minister of Finance and EconomicAffairs Simplex Chithyola Banda to be out of context.
The President, a cleric who abandoned the pulpit in 2013 to join frontline politics, went to the extent of branding critics of the development as having a “witchcraft mindset”, stating that “no one can take away the blessings that God has placed on our nation, not even the IMF”. His minister then claimed that IMF proposed “further currency devaluation, increased utility tariffs, wage reductions and a hiring freeze” when hitherto his office denied that the two devaluations prior to securing the ECF, one by 25 percent in May 2022 and the other by 44 percent in November 2023 were driven by desperation to meet the conditions of the programme.
Given the impact the two devaluations of the kwacha have had on Malawians’ livelihoods, it is surely an insult to their intelligence to suggest that the authorities were now suddenly more concerned about their welfare and deemed the conditionalities “potentially detrimental to the well-being of Malawians”. These are the same Malawians who were told they needed to endure swallowing bitter pills to get healed.
By the way, the collapsed ECF was negotiated by the Tonse Alliance administration after unceremoniously, as it were, cancelling an existing ECF in September 2020 negotiated by the previous Democratic Progressive Party administration, forfeiting $70 million in the process. I still feel that was ill-advised and a contributing factor to the current situation.
What I note is that the patient, Malawi, has, once again, failed to respond to the treatment prescribed by the “doctor”, IMF through its policies, starting from Structural Adjustment Policies through Enhanced Structural Adjustment Policy to Poverty Reduction and Growth Facility and now ECF.
Packages from IMF may not be that colossal and their impact on beneficiary economies has been mixed, but most poor countries such as Malawi strive to be “associated” with the fund for the sake of optics because the arrangements are widely known for their “signalling effect” of triggering direct budget support.
Naturally, in the heat of the moment, reactions to a situation can be emotional. In the aftermath of the collapse of the IMF deal, Reserve Bank of Malawi (RBM) Governor MacDonald Mafuta Mwale has emerged as a voice of reason, at least in my opinion. He is on record as having said that coordinated homegrown pillars were being considered as sufficient to maintain macroeconomic stability during the transition period.
The pillars may aren’t far from what the ECF prescribed and sought to achieve. What I see as a problem is that our economy is fraught with low productivity, dwindling revenues and weak exports which are worsened by delays to restructure debt.
Poor public finance management and weak oversight have also been major detractors towards stability and growth. There is need to walk the talk on austerity measures and public finance management. Where reforms are devised, they should not just be on paper, but should benefit the people through jobs, infrastructure investment, especially in rural areas and services, that way inclusive growth will be achievable.
In response to a question during a session on ‘Outlook for the global economy and policy priorities’ at Georgetown University School of Foreign Service on October 6 2022, barely days after posing for photos with President Chakwera, Georgieva decried the situation Malawi was sailing in and hoped that “to see the World Bank coming up with grants, bilateral donors coming up primarily with grants because Malawi cannot take up more debt. Debt is already unsustainable.”
The IMF is a lender of last resort and when countries such as Malawi get desperate to borrow from it, usually it means that they have nowhere else to get the next financing. If it were a medical case, it would be classified as critical, but in financial terms we can say they are high-risk borrowers.
Now that the ECF deal has collapsed and this being an election year, the fear is that Malawi Government may be forced to opt for expensive loans which in the long run will not be a good path to take.
