As the cost of living bites prompted by International Monetary Fund (IMF) orchestrated conditions, people are living a painful life.
As food prices rise due to factors including the falling kwacha, people have been sleeping on empty stomachs. As bus fares rise due to rising fuel prices some walk everyday for about eight kilometres to and from work.
Although walking for eight kilometres everyday is unthinkable what choice do the poor have in the face of rising costs and stagnant incomes? But what choice was available for government when the economy was on its knees?
As the international Monetary Fund (IMF) put it when it approved Malawi’s ECF in 2012, Malawi was on the verge of economic collapse.
The country was in a serious shortage of forex and fuel, effectively crippling the economy which grew at an anemic 1.9 percent in 2012 from a 4.3 percent gross domestic product (GDP) in 2011.
But as Malawi implemented the IMF orchestrated conditions which included the devaluation and flotation of the kwacha, and removed subsidies on fuel and electricity, the policy interventions boomeranged.
Inflation started galloping while the kwacha took a deep plunge in the wake of the May 2012 double dosage.
The cost of living started rising as food costs took an upward swing while utilities and fuel prices rose unbearably due to the removal of subsidies.
But although some experts argued the implementation of the policies was ill-timed, President Joyce Banda maintained the course.
In July 2012 IMF approved Malawi’s cancelled $156.2 million (about K70.3 billion) three-year ECF. But as government celebrated for the support some critics thought the fund and not the government was calling the shots.
In last year’s BBC interview with late Komla Dumor, Banda argued that all countries that are on an IMF programme have to go on the funds conditions for them to be back on track.
But how does the facility work? Are Malawi’s macroeconomic indicators within target?
According to the IMF, the ECF provides financial assistance to countries with protracted balance of payments problems—those economies sailing in troubled waters.
The IMF on its website notes that the ECF was created under a broader reform to make the fund’s financial support more flexible and better tailored to the diverse needs of low income countries which includes Malawi.
The Malawi ECF according to the IMF was meant to achieve and maintain a stable macroeconomic environment with low inflation apart from increasing international reserves from an equivalent of about one month of imports at in 2012 to three months of imports by end-2015.
The IMF notes that Malawi’s economic programme supported by the ECF arrangement is based on Malawi’s second Growth and Development Strategy (MGDS II) which it notes is aimed at achieving and maintaining macroeconomic stability and implementation of policies and structural reforms to spur growth, diversify the economy and reduce poverty.
Soon after Malawi devalued and floated the kwacha, inflation peaked at 37.9 percent in February from 12.5 percent in April 2012 as food, fuel and utility tariffs rose. The kwacha lost ground to its major trading currencies shedding off about 150 percent between May 2012 and June 2013 against the dollar.
The IMF, however, acknowledged that there was growing public outcry over falling living standards and perceived wasteful spending and fraudulent activities in the government sector but hinted that economic recovery was underway as GDP was set to grow by about five percent in 2013.
As the economy tanked due to forex shortage leading to severe shortage of fuel and other inputs for production did we have a choice apart from negotiating a facility with the IMF?
Arguably countries are not obliged to take an IMF loan, the state of the economy does.
But perhaps Malawi needs to look beyond aid and avoid the conditions associated with it.
Jeffrey Sachs, the American renowned economist recently argued in one of his articles published in The Foreign Policy that that aid is not the sole or main driver of economic development and that it is not automatically effective.
In the article Sachs argues that aid is one development tool among several which works best in conjunction with sound economic policies, transparency, good governance, and effective deployment of new technologies.
But even under the strict IMF facility, according to the Common Approach to Budgetary Support (Cabs) November 2013 extraordinary performance assessment framework, government has not been enforcing or observing budgeted expenditure ceilings—has been breaching some of the tenets to stabilising the economy. The IMF also noted that government has been heavily borrowing.
But after the IMF approved $20 million (K9 billion) after the third and fourth reviews, government was happy and hoped that it would unfreeze aid to Malawi.
But should Malawians celebrate for a crippled economy? Should we be happy for conditions that cause pain to the poor while on the other hand government cannot live up to its commitment?