IMF team in Malawi
The Fund’s country manager Ruby Randall confirmed on Monday that the mission will undertake a review of recent economic developments as well as an assessment of the medium-term economic outlook.
“It will consult widely with various stakeholders in the public and private sectors, including senior government officials, the banking sector, trade unions and representatives of the business community,” said Randall in an interview.
Finance and Development Planning Minister Ken Lipenga told Parliament in January the country has a $121 million (about K20.2 billion) hole in its current budget due to the suspension of an International Monetary Fund (IMF) programme, and a budget support freeze by Lilongwe’s key donors due to governance and economic management concerns.
This is the second time the IMF team is coming to Malawi in a space of four months. The first mission in December asked Malawi to devalue the official exchange rate further to between K230 and K250 against the dollar to address a foreign exchange shortage and unlock budgetary support which accounts for about 30 percent of the country’s national budget.
Malawi devalued the kwacha by 10 percent last August, but at K167 kwacha to the dollar, the official rate is not as attractive due the parallel market rate of between K240 and K300.
The IMF also said the overvalued exchange rate has led to the foreign exchange market rationing and multiple exchange rates which are key deterrents to private sector activity and diversification.
“The objective of the devaluation is to remove some of the demand for foreign exchange by putting the price for foreign exchange to a more market determined level,” said the IMF in a memo seen by The Nation.
The Fund also recommended that the central bank must remove restrictions it announced early last year and allow foreign exchange bureaus to set prices.
Malawi’s foreign exchange inflows are seasonal. During the harvest period (April-September) there is usually enough supply of foreign exchange, mainly from tobacco exports. The lean period is between September-March when the central bank becomes the sole supplier of dollars which come from the country’s development partners.
The dollar crunch has worsened because of low tobacco earnings and after key donors, including Britain, withheld budgetary support. This IMF mission will be the last one before the Fund’s spring meetings next month.
