Malawi has failed the International Monetary Fund (IMF) test with the Bretton Woods institution declaring its economic programme off-track after the country’s failure to meet set targets for end-June 2015.
Besides, the Fund has proposed several measures to government to revive the Extended Credit Facility (ECF) programme. These include revision of the 2015/16 National Budget passed earlier in June this year.
IMF has also projected that real gross domestic product (GDP) growth for 2015 has fallen to three percent from earlier projections of 5.5 percent, reflecting a steep decline in the maize harvest in addition to weak private sector investment and consumption.
The IMF assessment follows the Fund mission, led by the IMF mission chief for Malawi Oral Williams, which made assessments between September 16 and 30 through discussions for the 2015 Article 4 consultations and to discuss the ECF arrangement.
ECF, approved in July 2012, is IMF’s main tool for medium-term financial support to low-income countries such as Malawi.
“The ECF is off-track and we have discussed a number of measures [to bring the programme back on track] starting with a revised budget. You had floods and you had to employ more teachers, you had revenue shortfalls because of a number of shocks that the economy faced,” said Williams in an interview at Capital Hill in Lilongwe where he jointly addressed a news conference with Minister of Finance, Economic Planning and Development Goodall Gondwe.
But the IMF mission chief declined to suggest specific allocations the IMF wants Malawi to cut in the budget, saying Cabinet is better placed to do that.
However, Williams said their review has revealed that fiscal slippages equivalent to about two percent of GDP emerged during the second half of the financial year 2014/15, partly because of overspending on the wage bill and they were worsened by revenue and external financing shortfalls.
He said corrective measures employed were insufficient.
Added Williams: “As a consequence, the end-June programme target on net domestic financing was not met. On the structural side, structural reforms in the financial sector were carried out as planned, but programmed improvements in Public Financial Management [PFM] were delayed.”
But he said programme targets on net international reserves and the net domestic assets of the Reserve Bank of Malawi (RBM) for the end-June 2015 were met.
On the general economic situation, Williams said the domestic economy is currently facing challenges due to weather-related shocks, saying as a result, a looming food crisis is expected to negatively impact an estimated 2.8 million Malawians.
He also bemoaned high inflation rate, saying restoring macroeconomic stability by bringing inflation rate down to single digits remains the key precondition to fostering and sustaining growth in the near to medium term.
Going forward, Williams said consideration of the 2015 Article 4 by the IMF Executive Board is expected by November 2015 and that the mission is expected back in Lilongwe this December to evaluate targets and decide the way forward.
Reacting to the assessment, Gondwe welcomed IMF recommendation saying the situation Malawi find itself in today needs a “relook and come up with new revenue figures for the budget”.
He said: “There is no doubt, we have to reduce out total expenditure and I can’t tell you how we will reduce the figure now because my colleagues will have to sit down and adjust accordingly.”
But Gondwe hinted that government will definitely consider travel budget as one area that will be revised downwards in the 2015/16 budget during the Mid-year Budget Review meeting of Parliament in February next year.
Reacting to the derailment of the programme, Gilbert Kachamba, head of economics at Catholic University in Chiradzulu, expressed worry in an interview yesterday that the revision of the budget will affect poor Malawians as public service delivery will be negatively affected.
He said: “Of course, it is good to learn that the budget should be revised for it to reflect the reality on the ground but obviously it is the common man who will be overall affected as the delivery of public services will be compromised.”
Towards the end of last year, ECF was also declared off-track due what Gondwe said negative impact of the massive plunder of public funds commonly referred as Cashgate.
In 2011, the ECF was also declared off-track following the adamancy by former president the late Bingu wa Mutharika to devalue the local currency and implement public finance managed reforms.