Government and the International Monetary Fund (IMF) mission team yesterday began the make-or-break Extended Credit Facility (ECF) negotiations aimed at putting the country’s macroeconomic framework back on track.
And yesterday, revered former finance minister Goodall Gondwe said while government stands a chance to secure the programme, it should be prepared to make huge concessions, including on the K2.84 trillion budget framework that shoulders a 7.7 percent deficit as ratio of gross domestic product (GDP) and is beset by total public debt stock equivalent to 56 percent of the country’s economy.
In separate interviews yesterday, Minister of Finance and Economic Affairs Sosten Gwengwe and Secretary to the Treasury MacDonald Mafuta Mwale confirmed they started negotiations with the IMF team.
However, Gwengwe said it was premature to explain what government has put on the table until the end of the negotiations within the next two weeks when his ministry and the fund’s mission team will hold a joint media briefing.
Said the Finance Minister: “The meetings will take a hybrid mode, and it is a two-part mission. All other issues on one hand and the debt as a separate issue.”
However, an inside source privy to the first day of the meetings said engagements bordered on the update on fiscal framework assumptions, revenue projections, expenditures and the general economic outlook.
In an interview, Gondwe—who before returning to Malawi’s public service was IMF’s director of the African division—said he suspects the fund may ask the government to review the budget to manage the deficit therein.
Gondwe said: “I think we have reached a position where it is not the government that will be giving the IMF what to do; the IMF will tell us what to do.
“We will negotiate, but they will ask us a number of things, some of which we will not like and we will negotiate with them on just what could be done.”
In the 2022/23 National Budget, the deficit is pegged at K884 billion in nominal terms although at 7.7 percent of GDP, Treasury said it is better than during the stop-gap financial year covering July 1 2021-March 31 2022 ahead of the new financial calendar that starts on April 1 2022.
Treasury figures show that as at December 31 2021, public debt stock stood at K5.8 trillion or 56.8 percent of rebased GDP as compared to a stock of K5.45 trillion, or 58.8 percent of GDP in June 2021.
This equates to an increase of 7.1 percent in absolute terms, but a decrease of two percentage points as a ratio of GDP.
The public debt stock comprises K2.8 trillion (27.3 percent of GDP) external debt and K3.04 trillion (29.5 percent of GDP) domestic debt.
In an interview, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said Malawi needed the ECF like yesterday to stabilise the economy.
“At the international development economics level this will give confidence to other stakeholders such as World Bank, African Development Bank, European Union.”
The IMF mission team is expected to meet representatives of the central bank, commercial banks, private sector, and heads of selected State-owned enterprises as well as civil society representatives, among others.
In a recent interview, Reserve Bank of Malawi Governor Wilson Banda said he was optimistic that the country will walk away with a programme because the government has worked hard to deal with major pressure points.