The Reserve Bank of Malawi (RBM) has designed what it calls a homegrown macroeconomic framework to transition from the lapse of a four-year International Monetary Fund (IMF) programme.
RBM Governor McDonald Mafuta Mwale said in a statement at the weekend that the framework, to be developed in collaboration with Ministry of Finance and Economic Affairs, would largely rest on fiscal discipline, monetary controls and strategic foreign exchange management.
But in separate interviews, economists have argued that while the proposal sounds possible at face value, its success will depend on discipline and walking the talk.
Malawi’s $175 million (about K306 billion) Extended Credit Facility (ECF) with the IMF automatically terminated last week after authorities failed to complete any review over an 18-month period.
Mafuta Mwale said coordinated homegrown pillars were considered sufficient to maintain macroeconomic stability during the transition period.
He said: “This framework rests on three core pillars, namely fiscal discipline, aimed at aligning revenues with expenditures, monetary control, focusing on containing monetary expansion; and strategic foreign exchange management, to stabilise the kwacha and rebuild international reserves.
“To support exchange rate stability, the RBM will continue implementing targeted interventions in the foreign exchange market, prioritising essential imports and working with the banking sector to ensure adequate liquidity and efficient foreign exchange allocation.”
Mafuta Mwale said the central bank was also collaborating with commercial banks and the private sector to expand financing and address structural bottlenecks in key productive sectors, including agriculture, tourism, mining and manufacturing.
Under the ECF secured in November 2023, Malawi implemented a series of reforms that Capital Hill said were tough, but necessary to convince development partners about its commitment to reforms to revitalise the ailing economy. They included raising the policy rate and devaluing the kwacha first by 25 percent in May 2022 and by a further 44 percent in November 2023.
IMF said 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.
Commenting on the RBM position post-IMF deal, public finance management consultant Dalitso Kubalasa said while the plan appears to be a step in the right direction and has some promise, making it work won’t be easy.
In an interview, he said: “This moment could be the turning point Malawi needs if we proactively take bold, inclusive and transparent actions to realistically reset the economic system and build a credible people-focused recovery with hindsight.
“It must counter all associated risks and challenges such as the political will and policy coherence to truly tame fiscal indiscipline.”
On his part, economist Bond Mtembezeka said the pillars are as good as they are religiously implemented.
He said: “The issues remain as long as supply side bottlenecks will not be dealt with decisively and fiscal indiscipline remains, there is absolutely nothing that will happen to stabilise the economy.”
Independent presidential hopeful Milward Tobias, an economist, said the RBM statement was a mockery to the current political administration.
He said in an interview: “The Minister of Finance, in an interview with BBC, said the collapse is because government could not meet the [IMF] conditionalities as this is an election year. Government wants to suspend these conditions until after elections and will renegotiate a programme. This in itself is an unfortunate statement.
“The minister’s statement connotes admission of failure while the RBM statement seems to suggest the collapse is a natural choice.”
On the other hand, Economics Association of Malawi president Bertha Bangara-Chikadza said while taking the homegrown strategy path is practical, its success will require strong commitment from all, including politicians being an election year when monetary controls cannot be easily pursued.
Speaking in an interview, she said the issue of strategic foreign exchange management to stabilise the kwacha and rebuild international reserves will also need to be matched with deliberate structural reforms to improve governance and unleash productivity to support higher growth and diversify exports.
“There is need to produce and produce en masse to curb imports. While ECF was a painkiller while we were sorting ourselves, this time we need to do the job quickly, administer the dose that will cure the economy,” said Bangara-Chikadza.
An economist who opted for anonymity said the RBM approach makes sense, but the biggest problem is government spending.
Secretary to the Treasury Betchani Tchereni earlier said the programme faced a number of external shocks which made it difficult for the supply side to assist both increased revenue and enhanced production.
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.
