When the International Monetary Fund (IMF) executive board completed its seventh and eighth reviews under Malawi’s Extended Credit Facility (ECF) arrangement and approved $ 76.8 million (around K7.7 billion) disbursement early this week, the general response from commentators was mute.
Most of those who expressed their opinion on it actually said the decision was not that significant; that in fact the disbursed amount is a drop in the ocean. This is a wrong analysis on both counts.
What happened this week is a big deal. For a start, it injects the necessary confidence in the economy that finally we could be heading in the right direction after years of macro-fiscal instabilities.
Second, the IMF is not stupid. After the assessment, the board must have seen that there is sufficient progress in the macro-critical reforms to warrant further benefit of the doubt for the Malawi government.
That is something as a country we should be encouraging: there is something fairy good happening along the public finance and economic management chain that smells like hope, which is a good thing for Malawi.
The Peter Mutharika administration is certainly not there yet—too much still smells like a rotting rat somewhere in the ceiling, but Treasury appears to be taking a strong leadership stance to end impunity and bring sanity to the management of public funds and the economy in general.
The IMF’s Monday statement says as much: “The authorities have strengthened macroeconomic policies and stepped up the implementation of structural reforms over the last year to bring the programme back on track.”
But the fund adds, and rightly so, that “accelerating the implementation of public financial management reforms is indispensable to building trust and confidence in the budget process and ensuring control over fiscal operations”.
It adds: “Strong commitment controls, routine bank reconciliations, and regular fiscal reporting remain critical to preventing potential misappropriation of public funds and reviving donor re-engagement. The pursuit of prudent fiscal policy is critical to safeguarding medium-term fiscal and debt sustainability”.
Indeed, that is critical and President Mutharika as well as Finance, Economic Planning and Development Minister Goodall Gondwe have to be strong to bring about the needed changes necessary to turn around the situation; that is still viewed negatively by taxpayers, donors and investors—both local and international.
The macroeconomic environment remains hostile and unpredictable and no one should be under any illusion that these problems will go away anytime soon.
Cashgate and other policy mischiefs will continue to haunt us. The macroeconomic impact of the climate change induced food crisis is a strong dampening factor on the economy while its resultant double digit inflation—stuck in its 20s for years—further depresses the macro-fiscal situation as monetary policy tightens, borrowing rates jump to suffocating levels as a softening kwacha in an import-dependent Malawi drives prices even higher.
New pricing models that utilities such as electricity have adopted that appear to be pegged to the United States dollar without the attendant value for money are killing both households and firms.
On balance, therefore, the news from the IMF is soothing at a broader level even though it is not much of a game changer. But it is an important step in what could be a strong foundation for a new beginning.
And whoever thinks that $76.8 million is small change has no idea what the ECF is about and its significance to a country’s balance of payment position.
The facility is, according to the IMF, a “lending arrangement that provides sustained programme engagement over the medium to long term”, especially for a country with stubborn balance of payment problems like Malawi. Thus while the money is an important factor, it is not the only one. The most important one is the architecture that the programme helps to put in place to improve long-term imbalances.
Again, apart from the disbursement, the fund has also agreed to augment the ECF by a further six months to December with roughly $49.2 million more at play.
Our hope, however, is that come December, Capital Hill should have done enough in terms of establishing a new track record everyone can trust to secure a fresh programme instead of another extension. n