Elusive IMF deal, the folly of putting all eggs in one basket

In yet another statement marking the end of a “visit” by its mission, the International Monetary Fund (IMF) on Tuesday this week announced conclusion of discussions with the Malawi Government representatives.

Typical of diplomats who would tell you to go to hell in such a way that you end up asking for directions, the IMF phrased its statement in a manner that one needs to read in between the lines to get the meaning out of it.

The IMF said its team discussed “possible disbursement” of funds under the Food Shock Window and for a Staff Monitored Programme. In simple terms, the Bretton Woods institution has put its foot down that unless Malawi Government plays ball, it should be ready to endure a long walk towards getting the Extended Credit Facility (ECF) needed to get foreign aid inflows to stabilise an economy on its knees and struggling to fulfill balance of payment obligations.

From the start, the IMF made it clear that the issue of debt sustainability and restructuring plan is critical to get the nod of its executive board.

Two high-level interactions where President Lazarus Chakwera met IMF managing director Kristalina Georgieva coupled with several rounds of talks have proven not enough for Malawi to strike the right chord and get the ECF.

When the President first met Georgieva in March this year the headlines screamed ‘Malawi gets IMF lifeline’. But eight months later there is still no IMF deal in the bag. In September, on the sidelines of the 77th United Nations General Assembly, the President yet again met the IMF chief and the rest is history.

From the meetings, my observation is that while our authorities wax lyrical about their outcomes, on the other end, there was sobriety. Where the IMF made statements, the choice of words was careful. This is why it came as no surprise to me that 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 with our President, Georgieva decried the situation Malawi is sailing in.

She was asked why IMF support has left countries trapped in more debt and she responded that their programmes seek to minimise what it lends and maximise what it brings as a package of support from others, especially for low-income countries.

Georgieva said: “I will give you an example. We are currently discussing a programme for Malawi. The country is in a very difficult situation. What we want to see is 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.”

Fifty-eight years after independence Malawi is yet to attain economic independence and continues to depend on the IMF as a solution to its economic problems.

IMF packages are loans whose impact on beneficiary economies has drawn

mixed reactions as in some cases the prescription has worsened the conditions while in few other cases it has worked. Financing under the ECF carries zero interest rate and provides a grace period of five years and six months. It has a final maturity period of 10 years.

Ideally, IMF touts itself as working to achieve sustainable growth and prosperity for all of its 190-member countries by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation and economic well-being.

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, such cases would be classified as critical, but in financial terms we can say they are high risk borrowers.

On debt sustainability, the IMF is worried about Malawi’s increased penchant to borrow from regional banks. It has called for a stop to this, probably one reason fuel importers are struggling to sustain supplies at the pumps.

Ironically, Malawi has found itself on bended knees at IMF after unceremoniously, as it were, cancelling an existing ECF negotiated by the previous administration, forfeiting $70 million in the process.

But is the IMF the sole solution to Malawi’s problems? With due respect to the Washington DC photo-shoots, I still hold that solutions to our problems lie within. For instance, if loopholes in the public finance management system can be sealed, the estimated 30 percent resources stolen from the national budget annually would be directed to productive ventures and make a difference.

International trade is another area that can boost foreign exchange reserves over and above current sources. Here, tracking of sale proceeds from exports should also be critical.

Representatives of the Western powers and China are right here in Lilongwe. The British, the Americans, the Norwegians, the Chinese and even the European Union should be engaged locally to lobby for assistance. Despite other shortfalls, Malawi has peace as a strong currency coupled with peaceful power transfers across regimes since 1994, separation of powers, free press and others that can be used as bargaining tools. It is important to avoid putting all eggs in one basket.