The International Monetary Fund (IMF) recently approved a new Extended Credit Facility (ECF) for Malawi worth $112.3 million. The new programme aims to entrench macroeconomic stability and foster higher, more inclusive, and resilient growth. GRACE THIPA engaged IMF Resident Representative to Malawi, JACK REE, for more insights into the development;
The nod on ECF, what does it mean for the government and indeed the Malawi economy?
We just got IMF’s Board’s nod on the new ECF program economic program—which I really see as a vote of confidence by the international community. With this, we can turn around Malawi’s economic fortune once and for all. But that will require real actions. I am quite confident that the commitment to make this happen is there.
Particularly striking is that the authorities wanted an IMF programme right before the beginning of a fiscal year, when there is an election. This clearly demonstrates that the authorities would like to protect gains in macroeconomic stability at all costs—and prevent the election from derailing the economy.
Keeping the programme on track would not be easy given the political pressures for spending that looms on the horizon. We will just need to bite the bullet and do touch things.
What are the key challenges during the first six months of the programme for it to survive the first six to twelve months—which is high-risk?
The re-rise of inflation to 9.9 percent in March says risk of disinflation reversal is real. And the success of the new ECF programme will hinge on whether we can lock in the current trend of macroeconomic stabilisation. Among other things, this will require reigning in of budget deficits. It will also require continued caution in the conduct of monetary policy including in Reserve Bank of Malawi’s interest rate decisions.
Whether we can safeguard and build on crucial gains in public finance management reforms is also critical. Under the last ECF programme, the authorities reconciled the government’s cashbook with its bank accounts, perhaps for the first time in Malawi’s history. The new ECF programme intends to routinize this as an almost automatic process..
How successfully the authorities can implement structural reforms will be yet another factor defining the future of the programme.
How can t h e ECF programme lead to a path toward graduation from such programmes?
I am very optimistic that we can lock in a new trend a low inflation and high growth but we will need its consistent implementation.
A track record of strong economic performance is key to confidence building— which is exactly what the programme is built to achieve. The same track record will also be key to unlocking external finance. With these, Malawi will be able to continuously reduce aid dependency and gradually graduate from the IMF programme over time.
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