IMF tips Peter on economy, wants some JB reforms upheld

The International Monetary Fund (IMF) has advised President Peter Mutharika’s newly-elected government to ensure fiscal plans based on realistic estimates and avoid accumulation of arrears or excessive amounts for domestic debt if Malawi is to achieve macroeconomic stability.

The institution has also urged the Mutharika government to maintain some unpopular reforms that were started by former president Joyce Banda in May 2012,  such as the flexible exchange rate and the automatic fuel price mechanism (APM), which, it says, “have served Malawi well and we would hope that both are maintained”.

Meanwhile, Treasury, while emphasising that it is also waiting for official government policy direction on economy, says it welcomes IMF piece of advice and that achieving macro-economic balance would be key to stabilise the economy.

IMF Resident Representative Geoffrey Oestreicher told The Nation yesterday when asked on how best the newly elected government could bring about the much-needed macroeconomic stability, among others.

Said Oestreicher: “[Macroeconomic] stability will also require that monetary policy continue to be directed towards ensuring a decline in the rate of inflation.”

But he said such a stance would likely require maintenance for a while of relatively higher interest rates “and that would be painful”.

The IMF Malawi office boss explained that when considering the costs and benefits of alternative policies, it is imperative to remember that inflation hurts the poorest members of society than those who are able to financially protect themselves.

He noted that both the flexible exchange rate regime and fuel pricing mechanism policies have been instrumental in ensuring adequate and efficiently allocated supply in the market of foreign exchange and fuel, which he said are two essential pre-conditions for private sector growth.

Generally, Oestreicher stated that the continuation of reforms instituted by the previous government would serve to convince the private sector that reforms would stay and that, he said, would help generate the investment and supply response needed to achieve government’s ambitious growth objective.

He also said the future path of the economy will also be largely determined by the macroeconomic policy decisions that are going to be made in the months ahead.

He added: “Good growth performance is possible, but will require that the private sector is sufficiently confident in the future to invest and produce at a high level.”

In a separate interview yesterday, Ministry of Finance spokesperson Nations Msowoya said, without specifically commenting on the call to uphold the flexible exchange rate and automatic price mechanism, the ministry also supports the continued need to attain lower inflation and interest rate, among other key macroeconomic indicators.

“We would want macro-policies that don’t violate the macro-economy. Government is aware that macroeconomic balance is the way to go and you could even refer to the initial comments made by [Finance Minister Goodall Gondwe] to [journalists] soon after he was re-appointed the Finance Minister,” said Msowoya.

Earlier before the May 20 elections were held, the Economics Association of Malawi (Ecama) also pushed the need for the elected government to ensure weighing economic reform package by the People’s Party (PP) government and maintain those that have yielded positive results in the economy.