The Executive Board of the International Monetary Fund (IMF) today completed the fifth and sixth reviews of Malawi’s economic performance under the program supported by an Extended Credit Facility (ECF) arrangement.1 The Board’s decision enables the immediate disbursement of SDR 13.02 million (about US$18.1 million), bringing total disbursements under the arrangement to SDR 65.08 million (about US$ 90.3 million).
In completing the fifth and sixth reviews, the Executive Board also approved the authorities’ request for waivers of non-observance of performance criteria related to the net domestic assets of the Reserve Bank of Malawi (RBM), net domestic borrowing by the government, the ceiling on new non-concessional external debt maturing in more than one year, and the ceiling on non-accumulation of external payments arrears.
The Board also approved a request for an extension of the current ECF arrangement by six months to May 22, 2016 and the rephasing of disbursements associated with the seventh and eighth reviews.
The three-year ECF arrangement for Malawi in the total amount of SDR 104.1 million (about US$ 144.4 million) was approved on July 23, 2012 (see Press Release No. 12/273).
At the conclusion of the Executive Board’s discussion, Mr. Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director, issued the following statement:
“Malawi’s macroeconomic outlook and performance under the IMF-supported program was significantly damaged by a large-scale theft of public funds and by policy lapses in the run-up to elections. The breach of governance resulted in the suspension of budget support from donors, which has led to increased recourse to central bank financing, accumulation of domestic arrears, exchange rate depreciation, and high inflation.
“The new government is committed to rebuilding trust in public institutions and bringing the IMF-supported program back on track, including through maintaining a flexible exchange rate regime and the automatic fuel pricing mechanism. Bringing inflation down to single digits and boosting official foreign exchange reserves remain key policy objectives.
“Addressing weaknesses in public financial management is necessary to restore confidence in the budget process and foster donor re-engagement. The authorities’ steadfast implementation of a comprehensive strategy in this area remains an urgent policy priority.
“The central bank is committed to tightening monetary policy as needed to keep inflation on a downward path. Measures taken in late 2014 have already helped reduce liquidity and stabilize the currency. Steps underway to curb deficit financing by the central bank should enhance the credibility of monetary policy.
“Improved prudential and regulatory frameworks are key to safeguarding financial sector stability and supporting growth. The recently-completed diagnostic assessments of the banking system will be used to design a strategy to address sector-wide issues.
“Nonconcessional external borrowing in October 2013 gave rise to noncomplying disbursements following the completion of the third and fourth reviews of the Fund-supported program in January 2014. The authorities have taken corrective actions to strengthen their monitoring of the concessionality of new external loans and to enhance communication with Fund staff on this matter. In view of the corrective actions taken by the authorities, the Board decided to waive the nonobservance of the performance criteria that gave rise to the noncomplying disbursements.”
The Extended Credit Facility (ECF) is the IMF’s main tool for medium-term financial support to low-income countries. It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.