IMF warns on budget, tells govt to spend within means

The International Monetary Fund (IMF) yesterday warned President Peter Mutharika’s new administration to ensure fiscal discipline and spend within available resources.

Washington DC-based IMF mission chief for Malawi Tsidi Tsikata issued the warning at a news conference at Capital Hill in Lilongwe yesterday at the end of an IMF mission to Malawi between July 7 and 15 2014 to review recent economic developments, discuss government’s policy priorities and assist on the 2014/15 budget framework.

He observed that public resources are significantly constrained due to the high interest cost of domestic debt and the need to address a significant accumulation of domestic payment arrears.

Said Tsikata: “In the face of such a tight budget constraint, fiscal discipline will be critical to ensuring that spending is kept in line with available resources.”

Currently, Malawi’s major donors under the Common Approach to Budget Support (Cabs) are still withholding budget support worth $150 million since November last year, a situation which has created a huge fiscal gap for smooth budget implementation.

The donors were not amused by revelations of massive plunder of public resources dubbed Cashgate during the administration of former president Joyce Banda last September.

Added Tsikata: “While it is likely that some domestic borrowing may be needed this year to ensure delivery of basic services and avoidance of new payments arrears, it is important that these amounts be limited so as to lend support to the disinflation effort and preserve international reserves.”

He said the mission strongly supports the government’s intention to continue reforms in public financial management.

Tsikata also said IMF also welcomes the authorities’ plan to consolidate the diverse reform elements under one organisational structure.

“The authorities have requested that the IMF mission return to Malawi in October for programme discussions. The mission advised that a clear demonstration of prudent polices and strengthened adherence to commitments under the current programme over the coming months will be important for the success of the programme discussion,” he said.

Commenting on the performance of the $157 million worth of Extended Credit Facility (ECF)-supported programme, Tsikata described it as having mixed outcomes.

He said the end-June target for international reserves was met comfortably, but said several other targets such as on the net domestic assets of the Reserve Bank of Malawi (RBM) and on the net domestic borrowing by government were missed by substantial amounts.

He also said there was progress in implementing structural measures aimed at strengthening public financial management and the stability of the banking system, but said several other targets took longer than programmed.

Reacting to the IMF statement, Minister of Finance, Economic Planning and Development Goodall Gondwe admitted that the economy is facing some shocks and cited the withdrawal of budget support by Cabs donors last year.

During the visit, the IMF mission met the President, Gondwe, and RBM governor Charles Chuka, secretary to the Treasury Newby Kumwembe, other senior government officials, and representatives of the business community, civil society and Malawi’s development partners.