Malawi is keeping fingers crossed as it awaits the International Monetary Fund (IMF) Executive Board to approve an Extended Credit Facility (ECF) address balance of payment problems rocking the economy.
In pursuit of the deal, two weeks ago, Malawi Government officials hosted an IMF team in Lilongwe and discussed several issues that laid the groundwork towards attaining the programme.
At the end of the day, the IMF advised Malawi to urgently address debt sustainability and resolve the misreporting on foreign exchange transactions by the Reserve Bank of Malawi (RBM) if it is to qualify for the new ECF.
Traditionally, the IMF programme is known for its “signalling effect” of triggering direct budget support, although in recent years its effect has been fading due to Malawi’s ‘confidence deficit’ in the eyes of development partners as well as legacy issues in the aftermath of Cashgate, the plunder of public resources at Capital Hill exposed in September 2013.
When all is said and done, I feel Malawi put itself in an awkward situation that may complicate its attainment of the new IMF programme. How? One may ask. In my view, there are two wrongs Malawi did.
First is the premature termination of an existing ECF in September 2020, barely three months after President Lazarus Chakwera and his nine political-party Tonse Alliance assumed power through the court-sanctioned Fd most resh Presidential Election held on June 23 2020. Through the cancellation, Malawi forfeited $70 million after accessing $145 million under the three-year deal.
The second and probably most problematic is the revelation of purported misreporting or sugarcoating of the foreign exchange transactions by the previous administration.
If the cancelled ECF was left to run a full circle, Malawi would not have been in the mess it found itself in. This was one ill-advised decision by the Tonse Alliance administration. The best move would have been seeking a modification of the programme, in my view.
On May 11 this year, the IMF Executive Board approved Augmentation and Rephasing of Access under the ECF for Moldova which translated into an immediate disbusrsement of $144.8 million to help the country meet pressing Russia-Ukraine war balance of payments support.
Malawi is not on a similar ad hoc programme from the IMF because it has no arrangement with the Bretton Woods institution.
The misreporting case put Malawi in an awkward situation because the bar has now been raised and, above all, trust and integrity were breached. Trust is everything even in personal relationships such that even where amends have been made, the camaradeire is never the same. It is like a case of a partner in a relationship being caught cheating.
Debt sustainability is yet another thorn towards plucking the rose flower that is the IMF greenlight as the previous administration converted most debt into foreign currency denominated, thereby exposing the country to vulnerabilities as revenues collected are predominantly servicing debt.
The IMF Executive Board is expected to meet in mid-July to decide on whether Malawi should get a new ECF. Before that, RBM is supposed to have provided a report on foreign exchange transactions linked to the said misreporting. My prayer is that RBM will come out “clean” because any shortcomings in the transactions will erode its integrity both locally and internationally.
Missing out on the IMF programme will surely have dire consequences to the economy which is already bleeding. The ball is in the Malawi Government court to improve governance structures, public finance management as well as made tangible efforts in fighting corruption.
While working on the deal terms as outlined by IMF, authorities will do justice by asking themselves the following questions: Was the cancellation of the IMF programme a wise decision? How about the undermining of the credibility of RBM? What policies was the previous administration implementing and how are they affecting the economy now? How high was the debt portifolio and how has debt grown during the two years of the new administration?