Malawi’s leadership implored to address with speed IMF’s areas of concern on qualification for extended credit facility

President Chakwera with IMF’s Mika Saito last week

* Malawi fiscal performance requires urgent review so that the country is seen to be aligning to the agreed targets

* Although the country has faced some challenges, recently attributed to natural disasters, the fiscal imbalances created by strong spending appetite are not necessarily a new thing

By Duncan Mlanjira

The recent poor rating by the International Monetary Fund (IMF) on Malawi economic reform progress is a cause of concern and also reflects the serious approach by the IMF in its review process, says South Africa-based seasoned chief economist, Chifipa Mhango.

He was responding to what the IMF observed that Malawi faced implementation challenges during the first review of the Malawi Staff Monitored Program with Executive Board involvement based on end-December 2022 targets.

Thus Chifipa says “Malawi fiscal performance requires urgent review so that the country is seen to be aligning to the agreed targets”.

“Although the country has faced some challenges, recently attributed to natural disasters, the fiscal imbalances created by strong spending appetite are not necessarily a new thing.

“There is an urgent need for the authorities concerned to review this spending pattern and consider an approach that prioritise productive spending away from an administrative spending approach.”

Mhango, who is Chief Economist for Don Consultancy Group in South Africa, further said Malawi is a country that is “small in terms of the economy relatively and easy to manage if the efforts are not misplaced”.

“Malawi trade and industry policy implementation should also be geared at supporting an export oriented trajectory that creates an environmental for foreign reserves generation — which is another area of concern.

“If one looks at the AfCFTA agreements, there are areas of opportunity that Malawi can exploit intensively by increasing its productive capacity through the attraction of more investment.

“These areas range from agricultural production, agro-processing as well mining operations.

“It is, therefore, imperative that those assigned to taking a lead in managing the economic direction of the country take note of the IMF areas of concern and speed the implementation process — especially in areas that benefits the country and its entire masses.”

In a statement last week, Mika Saito — advisor at the African Department of the IMF — said the challenges Malawi is facing are linked to difficulties in reversing course on government spending in the context of a macro-economic adjustment programme which was adopted late in the fiscal year.

 

She said: “We had productive discussions with the authorities on Malawi’s performance under the first review of the PMB and the next steps. Performance under the PMB based on end-December 2022 targets was mixed.

“This partly reflects implementation challenges linked to the fact that the macroeconomic adjustment programme was put in place late in the fiscal year. It was thus, difficult to reverse course on government spending, and in turn, money growth and foreign exchange reserve accumulation,” she said in the statement.

Saito added that virtual discussions will continue to pin down modifications of the programme targets to reflect negative shocks from Cyclone Freddy which hit Malawi in March causing loss of lives, displacement of families and destruction of infrastructure and crops.

The PMB was approved by IMF Management in November 2022, together with a disbursement of US$88.3 million (about K91.4 billion) under the Rapid Credit Facility–Food Shock Window — with a view to support the authorities’ efforts in building a track record for an ECF and to improve the lives of Malawians.

Chifipa Mhango holds a Bachelor of Social Sciences degree in economics, accounting and statistics from the University of Malawi and a Master of Commerce degree in economics and econometrics from the University of Stellenbosch.

He has also worked as chief economist at PetroSA; as chief research director and partner at Kwesthuba Consulting Ltd; as Director of research and strategy at Don Consulting Group as well as executive head of strategy, business planning and communication at Nedbank Ltd.

Following the decision by the IMF in October last year to put on hold talks over a new ECF with Malawi until a resolution is made on the country’s debt sustainability situation, Mhango proposed to President Lazarus Chakwera a 5-straight action plan to win back the confidence of international lenders, such as the IMF.

Mhango proposed:

1. A fast-paced and aligned economic policy implementation that is also based on fiscal prudence approach;

2. A decisive action on issues of Governance and alleged corruption without fear or alleged politicisation;

3. A re-commitment to the Constitution of Malawi and its people in defining Government development agenda that is broadly inclusive of all to reduce poverty and inequality, as per IMF goals in its lending criterion;

4. De-politicisation of the key civil service appointment model with a merit based approach guided by a performance based contract approach, taking a quarterly review approach on Key Performance Indicators (KPIs) to ensure delivery; and

5. Seek the support and input of broader constituency of stakeholders for action based solutions on the economy of Malawi.

He had maintained that the consequences of not having ECF support from IMF for Malawi has serious economic and political stability implications for the country — for it may negatively affect provision of health services, education, as well as overall macro-economic stability among others.

Ahead of the just ended Malawi Investment Forum hosted in South Africa on May 23-24 — which Mhango had supported on media channels coverage — the chief economist applauded this initiative, saying it is the right, saying: “Trade and Investment are a key component for driving economic growth and prosperity to which Malawi should take advantage of.

“Malawi is a country that is well endowed with beautiful unexploited landscapes along the Lake Malawi shores, vast fertile arable land, rivers and lakes to support irrigation farming, newly discovered vast mineral resources and above all, political stability,” he had said.