The Executive Board of the International Monetary Fund (IMF) today approved a three-year, SDR 52.05 million (about US$79.4 million) arrangement for Malawi under the Extended Credit Facility (ECF)1 to support the authorities’ economic program for the period 2010–12.
A one-year Exogenous Shocks Facility (ESF) arrangement also for SDR 52.05 million (see Press Release) expired on December 2, 2009. The ESF arrangement was preceded by an arrangement under the Poverty Reduction and Growth Facility (PRGF) that was completed on August 4, 2008. Malawi reached the completion point for the enhanced Heavily Indebted Poor Countries (HIPC) Initiative on August 31, 2006.
The ECF arrangement approved today represents 75 percent of Malawi’s SDR 69.4 million quota in the Fund, of which the country became a member in July 1965.
Following the Executive Board’s discussion of the request by Malawi, Mr Takatoshi Kato, Deputy Managing Director and Acting Chair, made the following statement:
“Malawi’s economic program, supported by the Extended Credit Facility, aims to support Malawi’s Growth and Development Strategy by restoring internal and external equilibrium and addressing key structural constraints. The authorities have adopted a prudent fiscal stance in the 2009/10 budget by reigning in discretionary spending on goods and services while safeguarding priority social spending, and shoring up revenues. The budgetary impact of deficits in key parastatals will be limited by allowing for greater cost recovery and initiating a medium-term plan for restructuring Air Malawi’s debts. Progress is also made toward a more transparent accounting of the fertilizer subsidy program and enhanced fiscal accounting and reporting.
“The Malawian authorities have tightened monetary policy and intend to control the growth of monetary aggregates by ensuring fiscal discipline and prudent credit growth. The development of financial markets over the medium term would allow greater reliance on interest rate adjustments to help control inflation.
“The program is designed to build reserves and achieve a properly valued exchange rate to support growth and stability. The adoption of a flexible exchange rate and the steps taken to liberalize the foreign exchange market are welcome. The authorities have committed to undertake further policy adjustments, including of the exchange rate, if evidence emerges of continued excess demand for foreign exchange. Continued exchange rate flexibility will help to avoid an overly contractionary fiscal and monetary stance.
“Malawi’s structural reform agenda aims at strengthening the Public Financial and Economic Management unit in the Ministry of Finance, and enhancing the social safety net program through improved targeting of households and a possible expansion of the donor-financed pilot transfer program. Tax administration will be further strengthened and the tax base broadened to allow the value-added tax rate to be reduced to regional norms.
“The authorities intend to continue their efforts to create an enabling environment for private investment and growth by: developing a comprehensive strategy for reforming the utility companies and expanding access to utility services; strengthening the regulatory environment; and adopting market-friendly agricultural sector policies.”