The International Monetary Fund (IMF) on Thursday said Malawiâ€™s pace of recovery in key sectors has been slower than expected despite the countryâ€™s â€˜satisfactoryâ€™ performance under the new Extended Credit Facility (ECF) programme.
IMF mission chief for Malawi Tsidi Tsikata said this in Malawiâ€™s capital, Lilongwe, during a news conference at the conclusion of a two-week assignment by the mission in Malawi to conduct the first ECF review.
â€œThe pace of recovery in several other sectors has been slower than expected,â€ said Tsikata, who was flanked by Finance Minister Dr. Ken Lipenga, Reserve Bank Governor Charles Chuka, IMF country representative Ruby Randall and other senior government officials.
He said external shocks have created a more challenging environment in the economy than expected when the new ECF programme was formulated.
Tsikata said drought conditions in some parts of the country have dampened the near outlook growth, contributing to a spike in inflation and left nearly two million people facing a food deficit.
He also said the depreciation of the exchange rate, rising inflation rates and unforeseen difficulties in the implementation of social protection programmes are among principal challenges the authorities are currently facing.
He said discussions with Malawi authorities centred on tightening monetary and fiscal policies to stabilise the exchange rate which has already fuelled imported inflation into the country.
â€œAgainst the backdrop of difficult external environment, performance under the programme has been satisfactory,â€ said Tsikata.
He said most targets for end September 2012 were met, including those of net international reserves of the RBM and on the governmentâ€™s net domestic borrowing.
According to Tsikata, all structural benchmarks scheduled for implementation by end-September were met, including publication of the monthly revenue collections of the Malawi Revenue Authority in local newspapers.
Tsikata also hinted that consideration by the IMF executive board is tentatively scheduled for next month.
He said completion of the first review means Malawi will receive a disbursement of about $20 million (about K6.8 billion) in foreign reserves.
Malawi in fragile state
In an interview on the sidelines of the news conference, Lipenga, while acknowledging that the country is still in fragile state, said government is encouraged by the good performance as assessed by the IMF mission.
The IMF mission team visited Lilongwe from October 30 to November 15 2012 for discussions with Malawian authorities on the first review of the countryâ€™s ECF.
Meanwhile, the IMF has revised its growth forecast for Malawi for 2012 to 1.9 percent from 4.3 percent, saying a slowdown in the manufacturing and agriculture sectors has hit the country.
Tsikata said the exogenous shocks have created a more challenging environment than expected when the extended credit facility arrangement was done with Malawi.
â€œReal GDP growth is estimated to have slowed from 4.3 percent in 2011 to 1.9 percent in 2012 mainly due to contraction in output in the agriculture and manufacturing sectors,â€ he said during a news conference in Lilongwe.
â€œThe mission discussed the scope of tightening monetary and fiscal policies to stabilise the exchange rate and contain inflation,â€ he said.
Soaring food prices have in recent months pushed inflation to 28.3 percent far higher than the forecast of around 18 percent for calendar year 2012.