Discussions on a possible successor programme of the IMF’s Extended Credit Facility (ECF) are underway, with fiscal authorities hinting at the possibility of another ECF.
This follows the completion of the ninth review of the International Monetary Fund (IMF) three-year ECF—a lending arrangement that provides sustained programme engagement over the medium to long-term—last June which, according to authorities, broadly achieved its macroeconomic stabilisation objectives.
The ECF arrangement amounting to $143.5 million (K105 billion)—which was meant to be a three-year programme—came into effect on July 23 2012 and concluded last year June.
Without mentioning when the IMF mission is expected in the country, IMF country representative Jack Ree indicated that the mission is yet to reach an agreement with local authorities on a successor programme, but pointed out that it will most likely be another ECF programme.
He said the next programme will essentially be the part two of the previous ECF programme.
“Should this be the case then the discussion will likely be centred on how to cement gains made so far, particularly in macroeconomic stability and public finance management [PFM] while switching the policy gear to inclusive growth,” Ree said in a written response to a questionnaire on Tuesday.
He noted that authorities have managed to deliver expected outcomes on PFM, including fully reconciling government’s bank accounts, urging authorities to stay the course of fiscal consolidation and do more on strengthening the financial system’s stability.
Ree said: “Monetary policy should keep its focus on fighting inflation until we can announce a clean victory. Over time, lower and more stable inflation and a more balanced budget will give us more space to respond to negative cyclical shocks.”
In an interview on Tuesday, Treasury spokesperson Davis Sado was confident on the next programme, stressing that authorities have continued to encompass policies to maintain tight fiscal and monetary policies to reduce inflation and interest rates and ensure medium-term fiscal sustainability.
“We have been in line with the fund’s requirements and managed to deliver expected outcomes of the PFM as well as stabilising the macroeconomic environment.
“Soon we will sit down to make a decision on which direction we are likely to go in line with the programme which is yet to commerce.
“After consultations with various stakeholders, we came up with areas that government can focus on. We did an evaluation of the items, but we are yet to come up with a consensus,” he said.
University of Malawi Chancellor College economics professor Ben Kaluwa cautioned government against relaxation, and called for continued work to maintain a stable and better economy in line with the IMF requirements and for the good of the country.
“We know that the second half of 2017 has been impressive, but this does not mean that government should loosen up,” he said.
During the time authorities have been implementing the ECF, inflation rate dropped from around 36 percent in 2013 to 11.3 percent as of June 2016. Monetary authorities have cut the policy rate a number of times. The rate is now at 16 percent. The exchange rate has largely remained stable, providing space for planning for the private sector.
An ECF programme lasts between three and four years, and is meant to address a protracted balance of payment needs of a low-income country such as Malawi.
Through the ECF programme Malawi has, with substantial donor support, successfully addressed its humanitarian crisis after two consecutive years of drought and flooods.
The floods and drought negatively impacted 2.8 million people during the first half of 2015. In 2016, a second consecutive year of drought hurt growth and further placed about 6.7 million people at risk of food insecurity.
