The International Monetary Fund (IMF) says it will await results of the May 20 Tripartite Elections before it can release a $20 million (about K8.4 billion) disbursement into the government purse as part of the Extended Credit Facility (ECF) programme.
The IMF Mission led by Tsidi Tsikata has been in the country since March 18 2014 during which it held discussions with stakeholders from the Ministry of Finance, the Reserve Bank of Malawi (RBM) and civil society on the country’s fiscal progress and outlook for 2014/15 financial year which comes into effect on July 1.
Tsikata, who is IMF chief of mission for Malawi, said the mission had proposed to return to Lilongwe in June this year to confirm the recommendations agreed between the two parties before submitting a report to the IMF management and Executive Board.
“We can ensure our board’s commitment to the agreements reached during this mission. It is our hope that whoever forms the government will stick to the commitments, but we cannot guarantee that,” Tsikata said after reading out the press release at the conclusion of the mission.
Minister of Finance Maxwell Mkwezalamba said the IMF had commended government’s progress in implementing the economic programme under the ECF by containing expenditure levels and adequately mobilising revenue.
He said: “We are very confident that given the progress so far, we will get IMF to conclude its mission to Malawi by June.”
But Mkwezalamba’s optimism has come against Tsikata’s observation that the Capital Hill Cashgate and the resulting suspension of donor aid had resulted in expenditure controls which had taken a heavy toll on delivery of public services.
Since November last year, government departments and ministries have complained of reduced funding to programmes and projects, especially in the health and education sectors which have been rescued in some instances by donor support but channelled outside the government system.
Tsikata said government could not relax for the remainder of the financial year but stressed the need for a strong revenue performance which would rescue the country from the constraints experienced since June last year.
“I don’t think the situation is as gloomy. It has been a difficult economic environment and losing a significant chunk of the budget has had an impact which has resulted in expenditure compression and it will be difficult to compensate for the loss,” he said.
Tsikata said the positive outlook from budgetary support partners who at the March 5 Common Approach to Budget Support (Cabs) meeting agreed to make individual assessments before resumption of aid would work in the government’s favour.
The mission also warned government on risks and liabilities which might be incurred from its bail out of parastatals such as grain trader Admarc, National Food Reserve Agency, National Oil Company of Malawi and Malawi Rural Development Fund.
On a positive note, the mission commended RBM’s plans to boost liquidity reserves during the current tobacco season to create a buffer against shocks later in the year.
Responding to the mission’s observations, Mkwezalamba acknowledged that parastatals could pose a risk to the government’s budget and all efforts would be done so that they live within their means and price their products accordingly.
“RBM will continue to observe a tight monetary policy in a bid to achieve a single digit inflation. We have made a commitment to maintain a flexible exchange rate regime while avoiding excessive fluctuations,” he said.
However, the IMF disbursement of $20 million in January did not result in resumption of budgetary support from donors as expected but Mkwezalamba said government was in talks with the few partners who were ready to come back.
