The IMF has signalled confidence in the Joyce Banda administration’s economic stewardship by releasing a long delayed $20 million (around K9 billion) under the Extended Credit Facility (ECF) that many thought was threatened by the toxic cashgate.
Three Cabinet ministers announced the news at a press conference in Blantyre yesterday.
The disbursement—coming four months after cashgate broke and following consequent aid suspensions by key donors—is an important green light beckoning reticent donors under the Common Approach to Budget Support (Cabs) to return with their money; that the funds will be safe in the hands of the Banda administration.
As much as $100 million (K67 billion) in budget support is said to be withheld by various donors.
The IMF injection, arriving deep into the foreign currency lean period, may also help provide relief to the beleaguered local currency, the kwacha and halt its downhill slide.
The kwacha keeps falling against major international currencies, which is undermining confidence in the local financial market in the absence of the strong balance of payment support that IMF and donors give.
While typical insufficient forex cover could be the cause of the depreciation, the uncertainty around ECF has also exposed the local unit to speculative attacks, thereby worsening the value erosion and pushing prices of goods and services up at a time the cost of living, driven by rising food prices, is making life unbearable for the average Malawian.
Announcing the ECF disbursement, Finance Minister Maxwell Mkwezalamba—flanked by his deputy Cornelius Mwalwanda and Information Minister Brown Mpinganjira—said he received a phone call in the middle of last night from the IMF informing him of the “exciting” news.
He said the IMF Executive Board completed the third and fourth reviews of Malawi’s economic performance under the ECF-supported programme; hence, the disbursement.
“The Board’s decision enables the immediate disbursement of an amount of $20 million, bringing total disbursements under the arrangement to about $79.8 million,” he said.
IMF delayed the review of the third and fourth reviews of Malawi’s economic performance following cashgate.
Mkwezalamba also said the Board has extended the three-year ECF by four months and is now expected to end in November 2015.
The programme was approved in July 2012 in a package estimated at $156.6 million. With $79 million now disbursed, it leaves a balance of $77.6 million over the next 20 months.
He said IMF informed Malawi that the macroeconomic performance has remained satisfactory and the policy reforms initiated in May 2012 are showing positive results although cashgate has negatively affected the macroeconomic outlook.
“Government has committed to closely monitor expenditure execution and financing. Government has committed to continued tight monetary policy and fiscal restraint are needed to stabilise the exchange rate,” he said.
Mkwezalamba said he was optimistic that IMF decision will unlock the delayed budgetary support and that there was a green light that CABs would also disburse the budgetary support at the meeting scheduled March on 11 2014.
He also said Malawi is expecting the World Bank to release $50 million, European Union to release 23 million euros and African Development Bank about $10 million.
On his part, Mpinganjira condemned the moral decay that he said was on the increase in Malawi as evidenced by the rampant stealing of government resources.
Meanwhile, Mkwezalamba announced that the auditing that government undertook on the onset of cashgate revealed that the money stolen was K8.9 billion, not the K20 billion that the Financial Intelligence Unit (FIU) suspected.
“We did not want to talk about it then because we are waiting for the forensic report. The forensic will reveal whether the money stolen was more or less than the K8.9 billion which we have been quoting in all official discussion,” he said.