Beyond passing imf test

It is calm outside Capital Hill in Lilongwe. Long at last, President Peter Mutharika and his team can afford a smile following the International Monetary Fund (IMF) declaration that Malawi is back on track on its Extended Credit Facility (ECF) programme currently at $144.4 million (around K101 billion) as reviewed in 2012. Indisputably, the development brings a new wave of hope.

Although Malawi has passed this test, more has to be done.

“This time we have done better. Now the question is whether we can continue to do well. Public finance management reforms are very important to us and we will use these to guide us on what can be done better to get the system back to where it should be,” Goodall Gondwe, Minister of Finance, Economic Planning and Development, told the media in an interview after the meeting with IMF.

Gondwe attributed the success to government’s decision that all ministries and departments should first provide detailed fiscal reports before receiving allocations to control over expenditure.

In 2014, Mutharika, through the Public Sector Reforms Commission, instituted several measures to improve public finance management. Apart from submitting the reports, selected ministries and departments were put on a pilot project of performance assessment. Mutharika said this culture would spread across all ministries and departments.

Malawi fell off track after registering a scary K78 billion (about $115.7million) in domestic borrowing at the end of the 2014/2015 financial year, and in its second coming, IMF got a different story. Malawi has reduced the domestic borrowing to only K4.3 billion (about $6.4million) by December 2015, which is half the financial year.

IMF mission chief Oral Williams said: “Regarding programme performance, the authorities have demonstrated a concerted effort to put the programme back on track. Programme targets on net domestic financing and net domestic assets of the Reserve Bank of Malawi for the end of 2015 were met. The revised fiscal framework recently approved by Parliament is sufficient to meet the end June 2016 programme target on net domestic financing.”

There is a statement in this.

With vision, political will, leadership direction and ambition, Malawi can do well in managing its public purse. The country financial management system is in total disrepute since the revelations of the plunder of public resources popularly known as Cashgate. This led to withdraw of donor support by development partners-consequently, putting pressure on government to finance its national budget.

This, according to Gondwe, affected government in its planning and budgets, forcing Treasury to borrow heavily from the domestic sources.

However, domestic borrowing was a brief relief as it pushed the country off-track on IMF programme-a crucial factor for some donors to determine which countries to support.

But why is IMF return a relief?

The fund provides ECF-Supported Programme. In simple terms, it is support that the IMF gives to economically struggling nations to help them recover. It mainly supports the balance of payments (BOP)-a form of financial assistance to countries with prolonged balance of payments problems, aimed at helping them move towards a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.

Economist Henry Kachaje is not surprised that government is celebrating.

“The good news is that once IMF declares a country to be on track with its ECF supported programme, it signals other donors, especially the multilateral donors to consider budgetary support resumption. If this works in favour for the IMF board to approve the ECF in May, we might be lucky to get some budgetary support for the 2016/2017 financial year,” says Kachaje.

He, however, argues that ECF dependence should be temporary. Kachaje says in the long-term, the country must develop strategies to graduate from ECF support programme and recurrent budget support.

He also warns that Malawi should not be too excited, arguing that the decision by IMF might be a sympathy vote.

He explains: “It might be a sympathy vote considering the critical challenges the economy is undergoing. We have definitely tried to reform and implement most of the issues we were advised to address in September 2015 when we were declared off track, but there is more we still have to address for the economy to recover.”

But IMF report is not short of warnings. The report expresses concern over the low build up of foreign exchange reserves. It also cautioned that structural reforms such as bank reconciliations need to be sustained.  Since 2015, the country’s currency depreciated by about 36 percent and exports slumped by almost 10 percent.

Dalitso Kubalasa, executive director for Malawi Economic Justice Network (Mejn) tips government not to relax, but add an extra gear in financial management and exercise caution.

“As IMF has said, caution should be exercised as it is very easy to backslide. We need to sustain the momentum especially in the targets where there has been concerted efforts to improve,” advises Kubalasa.

On the way forward, Kachaje advises Mutharika to think the future and he suggests six areas to be considered to steer the economy.

“It is high time we are discharged from IMF. For 51 years, Malawi has been frequently admitted in the IMF intensive care unit (ICU). Being declared back on track with the IMF-ECF should never be a cause for celebrations for it basically mean a patient, who is back in ICU. We must aim for a full recovery and discharge,” says Kachaje, adding that Tanzania and Rwanda were discharged from the IMF-ICU and Malawi can achieve it.

Kachaje tips Mutharika government to stop talking irrigation but to do irrigation, trim the civil service, reduce public expenditure, incentivise private sector, re-introduce youth week and seal-off leakages to turn the Malawi story.

Mutharika has always said that his vision is to help Malawi get discharged from donor dependency.

In an interview with an American magazine Foreign Affairs in March last year, Mutharika said he has set five years for the country to start balancing its national budget without relying on contributions from donors, and the future is promising.

“Although we are not yet in a position to be totally free from reliance on our financial partners, we are certainly on the right track. In five years, we would like to be able to implement the national budget without support from donors. With proper planning, growth and expansion of our tax base, we can achieve self-sufficiency,” he told the magazine.

There is more to be done to turn the economy and Mutharika can borrow confidence from Singapore where the late Lee Kuan Yew transformed it from a small port city into a wealthy global hub. n