The International Monetary Fund (IMF) says the Malawi economy has the potential to recover from the negative impact of cashgate—looting of public funds at Capital Hill.
The global lender has also expressed optimism that inflation will decline this year and economic growth is bound to accelerate, if authorities continue implementing appropriate financial policies and maintain the momentum of reforms initiated under the government’s Action Plan.
“The fund’s baseline projection is for continued recovery and stronger growth in 2014,” said IMF country representative for Malawi, Geoffrey Oestreicher, yesterday.
The IMF statement of optimism comes at a time the economy continues to face considerable uncertainty from both external and internal shocks, including the suspension of budget support by major donors, rising interest rates and depreciation of the local currency relative to the dollar, which some economic analysts have feared would dampen high economic growth prospects.
Currently, Malawi’s year-on-year headline inflation, which was decelerating since March 2013, edged up by 0.7 percentage point in October 2013 to settle at 22.9 percent in November 2013, according to the National Statistical Office (NSO).
Commenting on the continued depreciation of the kwacha against major trading currencies, Oestreicher said the weakening of the local unit over the past few months has had some impact on the annual inflation rate and on rising food prices on the market.
He advised Malawi to maintain appropriate financial policies agreed under the IMF programme to reduce inflationary pressure and to reinforce private sector confidence in the sustainability of the recovery.
“Provided government maintained an appropriately tight policy stance, conditions were right for inflation to decline over the months ahead.
“Completion of the IMF programme reviews and continued vigorous implementation of the remedial measures contained in the government’s Action Plan and in the extraordinary policy assessment framework under the Common Approach to Budget Support, is expected to lead to the return of sufficient budget support to fully finance the revised budget for this fiscal year,” he said.
The IMF executive board last Friday concluded the third and fourth reviews under the Extended Credit Facility (ECF)-supported programme, leading to an immediate disbursement of about $20 million (about K9 billion) to Malawi.
Oestreicher noted that this inflow combined with the freeing up of a substantial portion of budget support, will augment foreign currency inflows into the economy, reinforce foreign exchange reserve levels and provide needed reassurance to the private sector that the government’s economic programme is fully financed and realistic.
He said if properly implemented, the measures agreed with government under the three-year programme should provide the foundation for sustainable low inflationary growth into the medium term.
Last year, the economy was projected to grow by 5.5 percent by IMF, but was later revised downward to five percent based on the fund’s survey results as well as revised crop estimates.
In 2012, Malawi’s real gross domestic product (GDP) growth rate was at a tepid 1.8 percent largely due to a slump in agriculture emanating from a weather-related decline in maize production and a halving of the tobacco crop.