IMF gets tough
The International Monetary Fund (IMF) has set tough conditions, including reducing borrowing for Malawi to implement and return to its economic programme, a move economists say calls for strong discipline and commitment from authorities.
For a government facing a K718 billion budget deficit largely financed by domestic borrowing and facing declining revenue collections attributed to the impact of Covid-19 pandemic that has slowed down economic activity, reducing borrowing is a tall order.
The IMF recommendations are contained in a statement released on Wednesday by its executive board at the end of the Article IV consultation with Malawi held on December 13 2021 for a new extended credit facility (ECF).
The IMF executive board stressed the need for determined implementation of policy adjustments to address Malawi’s macroeconomic imbalances, restore debt sustainability, rebuild external buffers as well as reduce poverty and inequality to improve social outcomes.
Reads the statement in part: “Directors underscored that restoring debt sustainability requires both addressing the legacy debt burden and adopting a strong fiscal adjustment programme.
“While expenditures on containment measures and vaccine administration remain important in the near term, redoubling efforts on domestic revenue mobilisation, curtailing and prioritising current spending and public financial management reforms are critical.”
The IMF also noted that a tighter monetary policy stance would be needed if inflationary pressures materialise and recommended careful monitoring of money growth and pressure on the exchange rate.
The IMF further stressed the need for greater exchange rate flexibility through a careful approach, containing external imbalances, and rebuilding external buffers which are critical to reducing Malawi’s vulnerabilities to external shocks.
But in an interview on Thursday, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni faulted the IMF directives, saying some of the recommendations are not making sense, especially on stopping Malawi from borrowing.
He said when coming up with such strict recommendations, the IMF needed to appreciate that Malawi is a poor country that cannot survive without borrowing. In this regard, he said the IMF board needed to recommend cheaper borrowing.
Tchereni said: “Borrowing is inevitable. If Treasury doesn’t borrow, we will not finance the infrastructure development which the same IMF has recommended in its own statement as good for economic rebound.
“The IMF should understand that its role is to support Malawi to stabilise its macroeconomic fundamentals.”
He said the major challenge in Malawi is the borrowing for consumption to finance statutory obligations such as paying salaries and procurement of some essential needs.
In a written response, Ministry of Finance spokesperson Williams Banda said on Thursday that in line with the IMF recommendations, Treasury will exercise prudence based on the available resources.
He said: “Government will strengthen prudent fiscal management, improve domestic resource mobilisation to achieve debt sustainability.
“We will ensure that major debt drivers are reviewed, especially public procurement contract management and budget management. So, the key issues for us are prudent fiscal management, improving domestic revenue mobilisation, among others.”
The IMF also called on the government to institute an audit on the case of potential misreporting on foreign reserves ahead of the new ECF.
The board noted a potential noncompliance in disbursements during the 2018 ECF arrangement with the IMF and the need for resolution before the new programme.
It urged the Malawian authorities to deliver on their commitment to conduct a special audit of foreign exchange reserves and improve the frequency and quality of data reporting.
In a separate interview, economist Milward Tobias, who is executive director of the Centre for Research and Consultancy, cast doubt on the misreporting claims by the IMF, saying it becomes extremely difficult to cheat on economic figures as thesituation on the ground reflects the true state of an economy.
He said: “In the period of the claimed misreporting, did the government fail to import necessities such as fuel, fertiliser and did businesses fail to access forex in banks? Did the economy experience high inflation rates? These issues would be manifesting on the ground when figures are cooked.”
Two weeks ago, police arrested former governor of the Reserve Bank of Malawi Dalitso Kabambe and former minister of Finance Joseph Mwanamvekha on allegations of misreporting forex reserves which put Malawians economic well-being at stake.
