IMF tips Malawi on sustaining economy

Post was last updated: January 15, 2020

The International Monetary Fund (IMF) has reiterated the need for Malawi to ensure fiscal discipline and prudent policy implementation to contain inflation to single digits and maintaining macroeconomic stability in 2020 and beyond.

In an email response to a questionnaire, IMF Resident Representative, Farayi Gwenhamo, warned that the 2019/20 budget focuses on ambitious revenue mobilisation but should there be revenue shortfalls, prioritisation of spending will be needed to prevent fiscal slippages.

She further said in the near to medium term, Malawi should reorient spending towards growth enhancing items, and advancing ongoing reforms in public investment management and public finance management (PFM).

“Any new borrowing ought to focus on projects with high rates of return that are closely aligned to development priorities while relying on concessional borrowing will help to contain borrowing costs.

“Key state owned enterprises reforms will help towards containing contingent liabilities and preventing a drain on the budget,” Gwenhamo said.

She added that continued exchange rate flexibility will be critical for cushioning shocks and enhancing export competitiveness.

“To support inclusive growth, medium term policies should help to ensure greater access to finance, build resilient infrastructure including enhanced electricity generation, irrigation and road networks and support economic diversification,” She said.

On continued economic vulnerability to effects of climate change, Gwenhamo said going forward, prioritization and implementation of policies in Malawi’s National Resilience Strategy will be key in adapting and building resilience to climate change shocks.

In a recent interview Professor of Economics at Chancellor college, Ben Kaluwa, condemned proliferation of subsidies in the financial budget which he says are not influential but increase the burden on the tax payer.

“There has been a proliferation of non performing subsidies, introduction of new ones formerly and also informally. The seed, fertiliser and malata subsidies are formal but there have been other subsidies where people were given assets by the government such as the tractor issue and the Kabaza motorbikes.

“Then there is the input side, the upstream of production. Supply of agriculture and manufacturing inputs especially energy have to be seriously tackled because processes in manufacturing are very sensitive to the quality of energy so any interruption have grave consequences,” Kalua said.

In November last year, the IMF approved $43.3 million to Malawi under the Extended Credit Facility (ECF) bringing total disbursements under the arrangement to $73.9 million.

The Fund further released $38.1 million to assist the government meet new balance of payments needs associated with reconstruction following Cyclone Idai.

The three-year ECF arrangement was approved on April 30, 2018 for $107.7 million to support the country’s economic and financial reforms.

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