The IMF on Tuesday welcomed Mondayâ€™s 49 percent devaluation of the kwacha and announced the start of work for a new Extended Credit Facility (ECF) programme with Malawi.
In an interview in Lilongwe, IMF resident representative Ruby Randall said: “A mission team is expected to return to Malawi in the third week of May to conduct formal negotiations on a new ECF programme. The programming work has begun in the interim and the team is working closely with the [Malawian] authorities to formulate a budget for the financial year 2012/13.”
Randall said the mission team is currently engaging with other key partners and liaising extensively with the donor community to mobilise resources to support implementation of the Malawi Governmentâ€™s “comprehensive reform package”, including social protection measures.
“We expect to be able to recommend approval of a new programme to our Executive Board soon after the mission returns to Washington in June,” said Randall.
Approval of a new programme for Malawi would be crucial to help unlock millions of dollars withheld by the countryâ€™s major donors under the Common Approach to Budget Support (Cabs). Release of the funds would, therefore, entail availability of foreign exchange which has been in short supply on the market as a result of lack of general budget support as well as poor tobacco prices.
Donor inflows are a second key source of foreign exchange for Malawi after tobacco, the countryâ€™s mainstay which contributes an estimated 60 percent of foreign currency earnings.
Commenting on the devaluation of the kwacha and its liberalisation by the Reserve Bank of Malawi (RBM), Randall said the exchange rate adjustment and the removal of some foreign exchange restrictions will help Malawi to fully liberalise the foreign exchange market and consequently help increase the availability of forex on the market.
RBM on Monday announced a 49 percent devaluation from K168 to K250 against the dollar and declared the countryâ€™s adoption of a free-floating foreign exchange regime.