IMF offers hope for Malawi
The International Monetary Fund (IMF) says it expects the resumption of withheld donor budget support funds to Malawi before end of June 2014 if the implementation of the Government Action Plan on cashgate continues at the current pace.
“If implementation of the action plan continues at the current pace, we would expect restoration of some, though not all, of the suspended donor financing by end-June 2014,” said IMF country representative Geoffrey Oestreicher in an exclusive e-mail interview with The Nation on Sunday.
He observed that the suspension of budget support has left “a residual” fiscal financing gap to be filled with some expenditure cuts and a small amount of additional domestic borrowing.
Malawi’s major donors under the banner of the Common Approach to Budget Support (Cabs) are currently withholding budget support worth $150 million (about K60 billion) towards the 2013/14 national budget following the revelation of massive plunder of public funds at Capital Hill, widely referred to as Capital Hill cashgate.
However, Oestreicher expressed satisfaction over progress the Malawi Government has made towards addressing cashgate, saying the Integrated Financial Management Information Systems (Ifmis) is now back online, but with much improved security and operational integrity.
He said: “The government has consolidated its response to the cashgate incident in a comprehensive action plan. The IMF has been following the design and implementation of this plan since its inception, and considers it to be a well thought-out and comprehensive approach to the situation facing Malawi today. Significant progress has already been achieved.”
Oestreicher noted that currently accountability is being vigorously pursued, both through investigations and prosecutions of those responsible for the fraud, and also through an ongoing forensic audit of transactions.
He also said IMF is pleased with transparency on the part of the government in the progress to address cashgate through weekly press conferences to report progress, and meetings with civil society and donors.
He advised the public to remain aware of the efforts being made by government and the international community to effect recovery from cashgate.
The third and fourth reviews of the Extended Credit Facility (ECF) programme are scheduled for discussion by the IMF’s Executive Board in January 2014.
Reacting to the IMF stance, Minister of Finance Maxwell Mkwezalamba said government also expects that once the IMF goes to the board next month, some Cabs donors will likely resume their budget support to Malawi.
“However, we have to wait for the Cabs meeting planned for March [2014] and I am confident that the outcome review meeting will be positive and we should see budget support coming in,” said Mkwezalamba.
There you have it! Nothing serious will happen to the economy in the name of a “cardiac arrest” as the case was last year. No one should panic regarding the economy in the short to medium term as we have been saying.
What all Malawians must come together for is the long- term development of Malawi. Many economic fundamentals are not yet in place and the few there are; are not properly balanced. There is an urgent need to balance the economy so it can grow, create jobs, and create wealth for all. For example, take GDP economic growth and job creation as principal national goals; you will see that monetary policy does not support these goals. Borrowing is expensive so new companies cannot start and expand to create jobs and to produce goods or services. Malawi needs structures in place to attract global investment capital through foreign direct investment (FDI), portfolio investment, and other financial derivatives instead of relying sorely on official reserve borrowing from the IMF. Fiscal policy is not geared towards supporting monetary policy by continually borrowing from overseas thereby worsening the national debt and the exchange rate. National debt profile becomes more foreign currency biased rather than local currency thereby jeopardizing Malawi balance of payment and its international investment position (IIP). Successive govts have argued that they want to avoid crowding out local borrowing but external borrowing is what has made the IMF to set up camp in your backyard. Why not balance the fiscal budget and live within your means. Focus on repaying off the accumulated debt and promoting FDI to expand the private sector.
This country so beautiful with lovely people but is going nowhere, economically. I am convinced the country has been given bad advice on economic fundamentals. It is time to fix the economic fundamentals not by politicians but by serious professionals. The country is not moving to the next level and if the CABS program is anything to go by, it has another 100 years. I am not going to play politics by lumping it all on the current govt alone. Malawi economy has always been and still is vulnerable on macro-fiscal shocks (primary balance, external balance, exchange rate, interest rates and GDP growth) making it unable to graduate from the gripping jaws of the IMF debt sustainability framework since 1980. I am sorry but these things have to be brought in the public debate as they are downright wrongly structured. They are holding back real development. Someone naïve said to me that this is not rocket science, I am sorry but developing a country is serious rocket science! Things are not as simple as they seem. Otherwise, Malawi and Africa would have developed long time ago. Unfortunately, to many people 1 and 1 just make 2 but in reality 1 and 1 also make 11.
For the good of this country, Malawi must also renegotiate and dismantle the CABS agreement with the donors in favour of standalone individual bilateral and multilateral arrangements, separately. CABS promote a “them and us” ganging up mentality. What many people may not realise is that ‘aid freeze’ causes more damage to the economy than (….I am sorry to say it but it is true) criminals can ever achieve. CABS aid freeze is a “malpractice” that creates more poverty that donors have come to help in the first place. Corruption occurs the world over and it is condemnable in the strongest of terms but it must be addressed through legal channels. The US has more money at stake of $350m millennium challenge fund but it did not freeze. After the WW II, the US gave $13.2bn aid to all major European countries (the Marshall plan) including Italy. If the US had to freeze the aid every time there was “bunga bunga” party misuse in Italy, would that country have recovered? This is real life and people’s suffering is real, not some “random walk” statistical analysis inside the Hilbert space of quantum mechanics!