“Malawi’s macroeconomic outlook and performance under the IMF-supported program was significantly damaged by a large-scale theft of public funds and by policy lapses in the run- up to elections. The breach of governance resulted in the suspension of budget support from donors, which has led to increased recourse to central bank financing, accumulation of domestic arrears, exchange rate depreciation, and high inflation.
“The new government is committed to rebuilding trust in public institutions and bringing the IMF-supported program back on track, including through maintaining a flexible exchange rate regime and the automatic fuel pricing mechanism. Bringing inflation down to single digits and boosting official foreign exchange reserves remain key policy objectives.
“Addressing weaknesses in public financial management is necessary to restore confidence in the budget process and foster donor re-engagement. The authorities’ steadfast implementation of a comprehensive strategy in this area remains an urgent policy priority.
“The central bank is committed to tightening monetary policy as needed to keep inflation on a downward path. Measures taken in late 2014 have already helped reduce liquidity and stabilize the currency. Steps underway to curb deficit financing by the central bank should enhance the credibility of monetary policy.
“Improved prudential and regulatory frameworks are key to safeguarding financial sector stability and supporting growth. The recently-completed diagnostic assessments of the banking system will be used to design a strategy to address sector-wide issues.
“Nonconcessional external borrowing in October 2013 gave rise to noncomplying disbursements following the completion of the third and fourth reviews of the Fund-supported program in January 2014. The authorities have taken corrective actions to strengthen their monitoring of the concessionality of new external loans and to enhance communication with Fund staff on this matter. In view of the corrective actions taken by the authorities, the Board decided to waive the nonobservance of the performance criteria that gave rise to the noncomplying disbursements.”
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