Malawi’s three-year economic programme with the International Monetary Fund (IMF)—the Extended Credit Facilty (ECF)—is currently off the wheels, both government and the IMF have confirmed.
Finance, Economic Planning and Development Minister Goodall Gondwe confirmed the development in an exclusive interview at IMF headquarters in Washington DC, USA, on Wednesday on the sidelines of the ongoing 2014 joint annual meetings with the World Bank.
Said Gondwe: “You cannot have a programme that did not envisage Cashgate and hope that the programme will be on-track.”
“So, it is off-track because of Cashgate, but the question is where we go from there?”
The ECF, approved in July 2012 and envisaged to phase out in November 2015, is worth $156.6 (about K70.3 billion) and is meant to achieve and maintain a stable macroeconomic environment in the country.
According to IMF, ECF provides financial assistance to low-income countries such as Malawi to bring about macroeconomic stability with low inflation, increasing international reserves to provide a buffer against external shocks, and reforms to improve the investment climate and promote sustained inclusive growth.
IMF last released funding to Malawi in January this year when it loaned the country $20 million (about K8 billion) following successful completion of the third and fourth reviews of Malawi’s economic performance under the programme.
The tranche brought the disbursement from the IMF to $79.8 million (about K32 billion).
The situation, according to Chancellor College’s economist Professor Ben Kalua, means continued suffering for the country’s economy since IMF acts as a referee to all donors that have links with Malawi.
“This means that donors would not be impressed with Malawi’s economic management and would selectively release their aid to sectors such as health and education.
“IMF’s nod is a green light to donors. The programmes’ off-track would mean more suffering; the ordinary person would even feel it. It will even mean inadequate forex and you know what happens; government may not be able to import essential goods,” he said.
Gondwe said despite proposals from other quarters for the programme to be cancelled to pave way for a new one due to Malawi’s poor showing on ECF, government would still continue with the current programme.
“The agreement we seem to reach with both the World Bank and the IMF [is that of continuing to implement the programme despite being off- track],” he said.
Gondwe explained that a team from the Bretton Woods institutions would soon be coming to Malawi to review the programme.
“When they come home, we will give them the figures and we will sit down to discuss where we go with our economy…and we will see what they will require from us in order to continue with the programme,” he added.
He said as of Wednesday, IMF and Malawi Government officials had not yet discussed the state of the country’s economy during the annual meetings, saying the fund is discussing global economy before talking about Africa.
Speaking in an exclusive interview at IMF Headquarters, the new IMF mission chief for Malawi, Oral Williams, also blamed the veering off of the programme on Cashgate which, he said, has created mistrust between Treasury and taxpayers in Malawi.
He warned that it would take longer for Malawi Government to rebuild trust and creditworthiness in its public financial management system.
Former IMF mission chief for Malawi Tsidi Tsikata noted in July this year that performance under the ECF-supported programme was diverse, as the programme was having mixed outcomes.
“The end-June 2014 target for international reserves was met comfortably. However, several other targets such as on net domestic assets of the Reserve Bank of Malawi and on net domestic borrowing by the government were missed by substantial amounts,” said Tsikata.
He also said there was progress in implementing structural measures aimed at strengthening public financial management and the stability of the banking system.
In 2011, the ECF also went off-track following former president the late Bingu wa Mutharika’s refusal to devalue the local currency and implement public finance managed reforms.
ECF replaced the Poverty Reduction and Growth Facility (PRGF) as IMF’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in programme design features, and more focused streamlined conditionality. n