Africa
AN International Monetary Fund (IMF) team led by Pritha Mitra, Mission Chief for Malawi, held a mission during March 10-23, 2020, to conduct the 2020 Article IV Consultation and hold discussions on the fourth review of the three-year arrangement for Malawi under the Extended Credit Facility, ECF, and arrangement.
Discussions were held in Lilongwe, Blantyre, and by video-conference from Washington D.C. At the end of the mission, Ms. Mitra issued the following statement:
“With the evolution of the COVID-19 outbreak still largely unknown, the economic outlook is subject to substantial uncertainty. The recent strong agricultural harvests and reconstruction activity after Cyclone Idai have boosted growth, but the growth path for the remainder of the year will depend on the extent of transmission to Malawi of COVID-19 and the magnitude of associated global and regional economic spillovers.
Notwithstanding the effects of COVID-19 on the economy, over the medium-term, growth may rise further to 6-7 percent, backed by infrastructure that is more resilient to shocks from climate change, improved access to finance, crop diversification, and an improved business climate. Inflation is anticipated to decline from 11.5 percent at end-2019 to 9.3 percent at end-2020, as elevated food inflation moderates, and gradually converge to 5 percent over the medium term. The key risk is the potential for deeper disruption to economic activity in Malawi from the spread of COVID-19.
“The authorities regained control over the budget in the first half of FY 2019/20, but maintaining this performance for the second half of the fiscal year will be challenging. Pressures from COVID-19 and political uncertainties ahead of the new Presidential elections are weighing on revenues. At the same time, expenditures have appropriately been increased to cover the cost of the upcoming election and to finance urgent health care preparations consistent with the government’s COVID-19 contingency plan developed with support from the WHO and other development partners.
“The authorities are deploying measures to enhance spending efficiencies and address revenue shortfalls in the current fiscal year and they expect to shift to a positive domestic primary balance in the coming years. They are committed to repaying arrears accumulated in recent years and addressing shortfalls in the system that led to them. The government will continue enhancing tax policy and revenue administration. Strengthening transparency in the budget process, the medium-term budgetary framework, cash management, and routinized bank reconciliation as well as gradual upgrading of the existing public financial management system will be critical.
“Monetary policy remains focused on preserving price stability over the medium-term. Banking system resilience continues to improve, with non-performing loans (NPLs) declining over the last three years and improved provisioning. Credit to the private sector has picked up in recent months but sustainably increasing access to finance will require addressing structural barriers, such as challenges with the collateral registry, mobile banking, and property rights.
“The Malawi Growth and Development Strategy (MGDS) III envisages significant improvements in building resilience to climate change, productivity and competitiveness which will unlock private sector potential. To this end, the authorities will continue to implement large-scale infrastructure projects, while preserving debt sustainability. Malawi’s debt has risen but both its external and overall risk of debt distress remain “moderate.” To reduce risks and benefit from more efficient and better quality spending, it will be important to improve public investment management, oversight and monitoring of state-owned enterprises and other parastatals, and debt management.
“The mission and the authorities had productive discussions on the 2020 Article IV Consultation and the fourth review under the ECF arrangement. These discussions will continue in the weeks ahead as the impact of the COVID-19 outbreak on Malawi become clearer.
“The team held meetings with Minister of Finance Joseph Mwanamvekha, Governor of the Reserve Bank of Malawi (RBM) Dalitso Kabambe, other senior government and RBM officials, a broad range of national stakeholders outside government, as well as representatives of Malawi’s development partners. The IMF team thanks the authorities for their warm hospitality, strong cooperation, and constructive discussions.”
– Mar. 26, 2020 @ 18:19 GMT |
Tags: Malawi: Statement at the end of an IMF staff visit to Malawi
