Malawi must negotiate the ECF programme it owns – The Times Group
Key Business Points
- Prepare for tax and regulatory reforms: The government is pushing for improved tax compliance and reduced exemptions, meaning local businesses should formalize operations to benefit from a more stable and fair competitive landscape in the gawo lapansi.
- Adapt to foreign exchange market normalisation: With negotiations focusing on a market driven exchange rate, importers and exporters must plan for currency volatility and focus on boosting local content and foreign exchange earnings.
- Seize the credit opportunities: As government works to lower high interest domestic borrowing, the mbame (private sector) can look forward to more affordable credit and less crowding out of local bank loans.
The International Monetary Fund (IMF) mission team is currently in Malawi for crucial policy negotiations regarding a potential Extended Credit Facility (ECF) programme. In an exclusive interview, Bertha Chikadza, President of the Economics Association of Malawi, shared insights on how the government should approach these talks. She emphasized that the negotiations should not merely be about securing IMF financing, but about crafting a credible, locally owned macroeconomic recovery plan aligned with the National Economic Recovery Plan (NERP) and the Malawi 2063 vision.
Chikadza highlighted that Malawi faces severe macroeconomic challenges, including high inflation, an unsustainable fiscal deficit, and depleted foreign exchange reserves. To address these issues, she advised the government to negotiate a smaller set of realistic, measurable reforms rather than agreeing to numerous structural benchmarks just to secure a staff level agreement. Fiscal consolidation must be central to the strategy, but its composition must protect vulnerable groups. The government should focus on reducing tax exemptions, improving tax compliance, controlling wasteful public expenditure, and rationalizing poorly performing public projects, while shielding spending on health, education, agriculture, and social protection. Specifically, the high cost of domestic borrowing continues to crowd out credit for local entrepreneurs, making a clear debt management strategy vital for the mbame.
Chikadza also stressed the importance of addressing the exchange rate issue with caution. The IMF has pointed out that the official exchange rate is overvalued, but she warned against another isolated devaluation. Malawi’s past experience shows that changing the nominal rate without fixing fiscal deficits and reserve shortages only leads to inflation. Instead, the government should negotiate the sequencing of reforms to unify exchange rates, while implementing a robust domestic debt management strategy to reduce high interest rates that crowd out credit for the mbame (private sector).
On the social front, Chikadza insisted that the government negotiate a strong social protection floor. Adjustments to fuel prices, taxes, and exchange rates can heavily impact households, so the programme must include protected minimum spending on social cash transfers, health, and food security. Furthermore, the government must establish a clear financing envelope early in the talks, securing commitments from the World Bank and bilateral partners. This is vital to rebuild reserves, ease forex shortages, and provide the gawo lapansi with the stable financial environment needed for growth.
Looking at the failure of the previous ECF programme, which terminated in May 2025 without a completed review, Chikadza called for a candid diagnostic. Both the government and the IMF need to understand what went wrong to build genuine political ownership. Ultimately, Malawi should remain firm on necessary reforms like fiscal discipline, but credible in its capacity to implement them, ensuring that the economic recovery plan truly serves the local business community and fosters long term investment.
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