IMF starts talks with Malawi

The IMF on Monday started Article IV consultations with Malawi aimed at assessing Capital Hill’s implementation of economic and financial policies towards the objective of fostering orderly economic growth and achieving reasonable price stability.

 

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information and discusses with officials the country’s economic developments and policies.

The team jetted in Malawi at the weekend. On return to headquarters in Washington, DC, the staff team prepares a report, which forms the basis for discussion by the Executive Board.

The Article IV consultations come at a time when Malawi’s Extended Credit Facility (ECF) programme with the IMF remains off-track with no immediate hopes of resuscitating it.

Finance and Development Planning Minister Dr Ken Lipenga confirmed meeting the IMF team Monday morning.

He said the mission, to be in Malawi for two weeks, will also meet stakeholders such as officials from his ministry; Ministry of Natural Resources; Energy and the Environment; Ministry of Agriculture; representatives of civil society and the private sector.

“They are not meeting the President. It is a purely technical process,” said Lipenga.

‘Consultations won’t touch ECF’

He said the consultations will not touch on the derailed ECF.

“They are here strictly for Article IV,” said Lipenga.

In January this year, Lipenga, while admitting that it has taken too long to return to the ECF, said Capital Hill has not given up on the programme.

The minister said he will still fight for the resuscitation of the ECF, a facility that would unlock hundreds of millions of dollars in withheld aid.

The IMF team is also expected to look at the package proposed by a World Bank team that was in the country recently as well as listen to proposals from the Malawi Government on how to reinvigorate the weakening local economy.

IMF officially declared the ECF off-track last June after Malawi’s failure to devalue the kwacha as agreed in the programme, among other fiscal and monetary policy differences.

Late last year, the IMF accepted Malawi’s request for the institution’s technical assistance (TA) to help Capital Hill return to ECF.

In a report titled ‘Liberalisation of the Foreign Exchange Regime for Current Account Transactions and Exchange Rate Flexibility’, the Bretton Woods institution advised Malawi to loosen its overvalued currency from the current K167 per dollar to between K230 and K250.

But President Bingu wa Mutharika has on a number of occasions vehemently rejected the advice, arguing that doing so will hurt Malawians.

The last time Malawi and the IMF had article IV consultations was in February 2010.

While praising Malawi’s strong economic growth rates at the time, the fund noted in a February 19 2010 press statement that Malawi’s external position remains weak and that official reserves have fallen to well below prudential levels.

The IMF also warned that delays in relieving the foreign exchange shortage could threaten growth, fiscal revenues and investor confidence.

“Directors endorsed the authorities’ objectives to build international reserves, achieve a properly valued exchange rate and liberalise the foreign exchange market. They saw the reversion of the foreign exchange surrender requirement and the gradual depreciation of the nominal exchange rate as encouraging steps and looked forward to Malawi’s full adherence to Article VIII obligations by end-2011.

“Directors welcomed the authorities’ commitment to undertake further policy adjustments, including of the exchange rate, should continued evidence emerge of excess demand for foreign exchange. They noted the importance of exchange rate flexibility to avoid an overly contractionary fiscal and monetary stance,” said the statement.