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© 2010 International Monetary Fund

March 2010

IMF Country Report No. 10/87

Malawi: Staff Report for 2009 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility

The following documents have been released and are included in this package:

  • The staff report prepared by a staff team of the IMF, following discussions that ended on November 11, 2009, with the officials of Malawi on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 4, 2010. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • Supplement to the staff report.

  • A statement by the IMF staff representative.

  • A Public Information Notice (PIN).

  • A Press Release.

  • A statement by the Executive Director for Malawi.

The documents listed below have been or will be separately released.

  • Letter of Intent sent to the IMF by the authorities of Malawi*

  • Memorandum of Economic and Financial Policies by the authorities of Malawi*

  • Technical Memorandum of Understanding*

  • *Also included in Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

Telephone: (202) 623-7430 • Telefax: (202) 623-7201

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International Monetary Fund

Washington, D.C.

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Staff Report for Malawi 2009 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility

Prepared by the African Department

(In consultation with other departments)

Approved by Sharmini Coorey and Dhaneshwar Ghura

February 4, 2010

Discussions were held in Lilongwe and Blantyre during October 26–November 10, 2009 and continued via videoconference. Staff met with the Minister of Finance, Mr. Kandodo, the Governor of the Reserve Bank of Malawi (RBM), Dr. Ligoya, the Secretaries of the Treasury, Mr. Mwadiwa and Mr. Mwanamvekha, the General Manager of the RBM, Dr. Banda, other senior government officials, and representatives of the private sector, civil society, and development partners. The staff team comprised Ms. Stotsky (head), Ms. Randall, Ms. Matlanyane, and Mr. Yartey (all AFR), and Mr. Thornton (SPR). Mr. Itam and Ms. Teferra (OED) participated in the discussions. The Fund’s resident representative, Mr. MacFarlan, and country economist, Mr. Mulwafu, assisted the mission.

Staff recommends the approval of a three-year arrangement under the Extended Credit Facility (ECF) in the amount of SDR 52.05 million (75 percent of quota), based on understandings reached on the macroeconomic program and structural reforms for the period 2010–12. A one-year Exogenous Shocks Facility (ESF) arrangement of SDR 52.05 million (75 percent of quota) was approved on December 3, 2008 (Country Report No. 09/16) and expired on December 2, 2009. The last Poverty Reduction and Growth Facility (PRGF) arrangement was completed on August 4, 2008. The completion point for the enhanced HIPC Initiative was reached on August 31, 2006. Outstanding Fund credit through January 2010 was SDR 80.95 million (116.64 percent of quota).

The safeguards assessment was updated in December 2008 and is currently being updated.

The joint IMF and World Bank staff advisory note on the first annual progress report on the Malawi Growth and Development Strategy was presented to the Executive Board on September 16, 2008.


  • Executive Summary

  • I. Recent Developments and Performance under the ESF

  • II. Policy Discussions

    • A. A Return to Fiscal and Monetary Discipline

    • B. Anchoring External Sustainability and Foreign Exchange Market Liberalization.

    • C. Structural Reforms

  • III. Economic Outlook and Risks

  • IV. Program Monitoring

    • A. Program Monitoring and Conditionality

    • B. Capacity to Repay

    • C. Safeguards Assessment

    • D. Data Issues, Technical Assistance, and Capacity Building

  • V. Staff Appraisal

  • Tables

  • 1a. ECF Scenario—Selected Economic Indicators, 2008–14

  • 1b. ECF Scenario—Selected Economic Indicators, Fiscal Year Basis, 2008/09–2013/14

  • 2a. Central Government Operations, 2008/09–2013/14

  • 2b. Central Government Operations, 2008/09–2013/14 (Percent)

  • 3a. Monetary Authorities’ Balance Sheet, 2008–10

  • 3b. Monetary Survey, 2008–10

  • 3c. Commercial Bank Financial Soundness Indicators

  • 4. Balance of Payments, 2008–14

  • 5. Millennium Development Goals

  • 6. Quantitative Targets-ECF Scenario

  • 7. Prior Actions and Structural Benchmarks, 2009–10

  • 8. Indicators of Capacity to Repay the Fund, 2009–18

  • 9. Schedule of Disbursements Under the ECF Arrangement

  • Figures

  • 1. Fiscal Developments, 2002/03–2009/10

  • 2. Monetary Developments, 2002–09

  • 3. External Developments, 2001–10

  • Boxes

  • 1. External Payment Arrears and Restrictions

  • 2. Assessment of Malawi’s Exchange Rate

  • 3. Economic Performance Under Recent Fund Arrangements

  • 4. Foreign Exchange Market Liberalization, 2010–12

  • Appendixes

  • I. Letter of Intent

  • Attachments

    • I. Memorandum of Economic and Financial Policies, 2010–12

    • II. Technical Memorandum of Understanding

  • II. Joint IMF/World Bank Debt Sustainability Analysis

  • Annexes

  • I. Relations with the Fund

  • II. JMAP Implementation

  • III. Statistical Issues

  • Statement by IMF Staff Representative on Malawi

  • Public Information Notice

  • Press Release

  • Statement by Executive Director for Malawi

Executive Summary

  • Malawi’s agricultural-based economy has weathered well the global economic storm, with record harvests in recent years leading to 9.8 percent growth in 2008 and an estimated 7.6 percent in 2009. Inflation has remained moderate. The financial sector was only modestly affected by the global turmoil and remains well-capitalized and profitable.

  • A loosening of fiscal and monetary policies during the run-up to last May’s elections led to high government domestic borrowing in fiscal year 2008/09 (ending in June 2009), and rapid money and credit growth. This easing contributed to low international reserves. The end-June 2009 ESF program targets for net domestic repayment of the central government, and net domestic assets and net international reserves of the RBM were missed by wide margins. The fiscal year 2009/10 budget reflects a prudent fiscal stance, targeting a repayment of net domestic borrowing in line with the medium-term objectives to maintain a low deficit and create room for private sector credit.

  • A weak balance of payments threatens exchange rate and price stability and medium-term growth. The de facto pegging of the Malawi kwacha to the U.S. dollar from 2006 to late 2009 helped to moderate inflation. But persistent inflation differentials with trade partners and the peg led to some appreciation of Malawi’s real effective exchange rate. Rapid growth of domestic incomes and exchange rate appreciation have led to an imbalance between the growth of imports and exports and widened external current account and balance of payments deficits.

  • The authorities have recently adopted a number of measures to address the external imbalance, including initial steps at market liberalization, gradual depreciation of the exchange rate, and strengthened budgetary spending controls. However, continued policy adjustment and external support are critical.

  • Staff support the request by the Malawian authorities for a three-year arrangement under the ECF with access of 75 percent of quota. This arrangement would support Malawi’s efforts to sustain high growth and poverty reduction, underpinned by sound macroeconomic and exchange rate policies, in line with the Malawi Growth and Development Strategy, which incorporates its poverty reduction strategy.

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Public Information Notice (PIN) No. 10/38


February 19, 2010

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

On February 19, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Malawi.23 The Executive Board also approved a three-year arrangement under the Extended Credit Facility (ECF) in the amount of SDR 52.05 million (75 percent of quota).

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Press Release No. 10/52


February 19, 2010

International Monetary Fund

Washington, D.C. 20431 USA

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February 19, 2010