Malawi Government says it has mutually agreed with the International Monetary Fund (IMF) to suspend the four-year $175 million (about K306 billion) Extended Credit Facility (ECF), a situation economists say poses doom for the struggling economy.
Secretary to the Treasury Betchani Tchereni said in a statement last evening that the decision to have the programme “lapsed” followed a mutual resolve between Malawi and the Bretton Woods institution.
Reads the statement in part: “The programme faced a number of exogenous shocks which made it difficult for the supply side to assist both increased revenue and enhanced production.
“This resolution allows the political environment necessary for the progression of the ECF programme to normalise as is expected after the elections in September 2025, thus enabling government to leverage its fresh electoral mandate in negotiating a more sustainable Extended Credit Facility package for Malawi’s macroeconomic stability going forward.”
Tchereni said recognising the extent of the exogenous shocks that affected the country, the IMF has agreed to deploy a mission at the end of May 2025 to conduct a monitoring and consultation exercise for Malawi’s economic mainstays in preparation for “a tailor-made Malawi programme” in the future.
On its part, the IMF, in an update on Malawi’s ECF, said that while the ECF arrangement has expired, it was engaged in Article IV consultations with the Malawi Government.
Reads the IMF update: “The IMF continues to work with the authorities in other ways within its mandate to support Malawi. This includes providing technical assistance to help modernise Malawi’s economic policies, strengthen its institutions and their capacity to implement reforms.
“In addition, a range of tailored financing tools is still available to give Malawi some breathing room to adjust policies in an orderly manner.”
While discussions between the IMF and the Malawian authorities have been ongoing, no programme review has been completed.
In an update on Malawi, the IMF also confirmed that in accordance with its financing policies for low-income countries, Malawi’s ECF automatically terminated yesterday as no review was completed over an 18-month period.
The now suspended ECF followed a review mission in September 2023 led by IMF mission chief for Malawi Mika Saito, which agreed a four-year ECF programme to replace the Staff Monitored Programme with limited board involvement that expired in October that year and Malawi’s request for the ECF.
Malawi had implemented a series of reforms that Capital Hill said were tough, but necessary to convince development partners that the government was committed to reforms to revitalise the ailing economy. They included raising the policy rate and devaluing the kwacha.
According to the IMF, one of the most urgent goals of the ECF was to support the authorities’ commitment to restore macroeconomic stability and creating an environment of low or moderate inflation as well as a stable exchange rate.
Reform efforts under the suspended programme focused on bringing back the country to a sustainable fiscal path, rebuilding external buffers, restoring debt sustainability and external viability while mitigating the effects of El Nino-induced shocks.
Now that the IMF deal, secured in November 2023 to stabilise the economy and unlock direct budget support from multilateral institutions such as the European Union (EU), the World Bank and the African Development Bank, has lapsed, some stakeholders worry that this could affect direct budget support.
In his reaction to the suspension, former minister of Finance Joseph Mwanamvekha said the country risks losing the $140 million that was expected from the IMF and the $80 million from the World Bank which were largely dependent on the ECF programme.
To date, the IMF had disbursed $35 million of its package, leaving a balance of $140 million.
Mwanamvekha, a legislator affiliated with the opposition Democratic Progressive Party, said Malawi could also lose other budget-related support from other cooperating partners.
He said: “What is more worrying is that this is happening against a backdrop of the recent loss of support from the United States of America Government through USAid.
“This is sad and unfortunate, though not surprising! We knew the ECF programme was off-track way back and that MCP [Malawi Congress Party] government has been missing all the agreed targets and benchmarks since its inception.”
In a separate interview last evening, UTM Party president and former Reserve Bank of Malawi governor Dalitso Kabambe also said the deal’s lapse could lead to loss of donor support.
He said: “We have also lost a lot on the funds which could have come with the programme as we only received about $30 million because we couldn’t meet the targets.
“IMF works with a signalling effect institutions like the World Bank, European Union and other development partners and in the absence of the programme, these will also wane. “
On his part, Scotland-based Malawian economist Velli Nyirongo said the lapse may worsen foreign exchange shortages and delay economic recovery, as the ECF was supporting essential imports and macroeconomic stability.
Public finance management consultant Dalitso Kubalasa observed that the lapse will further heighten social pressure as citizens already reeling under the high cost of living and struggling to make ends meet may lose hope; while political tensions may rise.
He said in the absence of a clear home-grown economic solution, public frustration could further deepen, risking citizens’ hopelessness.
The IMF Executive Board approved Malawi’s ECF on November 14 2023 to support the country’s efforts to restore macroeconomic stability and achieve a sustainable, poverty reducing growth.
Malawi sought the new ECF after cancelling the previous arrangement in September 2020 barely two months after the Tonse Alliance administration led by President Lazarus Chakwera ascended to power.
Following the cancellation, Malawi forfeited $70 million and total access under the cancelled three-year ECF was about $145 million, including the initial $112.3 million approved in April 2018 plus $40 million under Augmentation of Access approved in November 2019.
