Economics Association of Malawi (Ecama) says Malawi was supposed to be assisted to rebuild its foreign exchange reserves and provided with enough financing to build productive sectors to attain macroeconomic stability.
Ecama president Bertha Bangara Chikadza’s sentiments yesterday come after the automatic termination of the four-year International Monetary Fund (IMF) $175 million (about K306 billion) Extended Credit Facility (ECF) programme over failure to achieve macroeconomic stability after 18 months without reviews.
In a written response yesterday, she said Malawi could not rebuild its international reserves when it is not producing enough amid collapsing exports and could not curb inflation amid food shortages that came with cyclones and El Nino.
She said Malawi could also not restructure its external debt, currently at around $4.27 billion (about K7.5 trillion) because the lenders needed to agree to debt restructuring, which means losing their profits.
Said Bangara Chikadza: “However, as a country, we should not wait for the IMF to have fiscal discipline or have sustainable revenue mobilisation to improve public financial management and reduce domestic borrowing, which is a key ingredient to achieving debt sustainability and supporting appropriate monetary policy to contain money growth and curb inflation.”
She said while losing some of the aid might impact the country negatively and affect its aspirations, Ecama “sees this as a decisive act of wanting to have thorough discussions with the IMF on the conditions that come with ECF”.
Scotland-based Malawian economist Velli Nyirongo yesterday said the major concern has been lack of fiscal discipline and clear policy direction, with monetary and fiscal policies often misaligned and government spending exceeding budgeted limits.
He observed that although bilateral partners have provided some assistance, the absence of a comprehensive agreement with all creditors has hampered the country’s ability to achieve meaningful debt relief.
“Furthermore, austerity measures and structural reforms have often faced resistance due to their adverse impact on the population, particularly the most vulnerable groups,” he said.
Secretary to the Treasury Betchani Tchereni said in statement on Wednesday evening that the programme faced a number of exogenous (external) shocks, which made it difficult for the supply side to assist both increased revenue and enhanced production.
But a Treasury source noted that government was required to reduce fiscal deficits annually, but on the contrary, it contributed with an expansionary fiscal stance soon after the ECF was approved.
“The kwacha realignment against major currencies was designed to reduce the pressures on kwacha as people were rushing for foreign imports, but this too did not happen just as was the case with the need to restructure non-performing institutions such as Export Development Fund.”
Meanwhile, IMF has given Malawi key policy recommendations to help restore macroeconomic stability in Malawi.
They include strengthening fiscal discipline and sustainability, rebuilding of international reserves and facilitate an exchange rate regime that supports external stability, restructuring external commercial debt to support debt sustainability and structural reforms to improve governance and unleash productivity to support growth.
The IMF ECF was secured in November 2023.
