Front Matter

Front Matter Page

IMF Country Report No. 13/131

May 2013

In the context of the second review under the Extended Credit Facility Arrangement and request for Modification of Performance Criteria, the following documents have been released and are included in this package:

  • Staff Report for the Second Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria, prepared by a staff team of the IMF, following discussions that ended on February 28, 2013, 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 March 29, 2013. 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.

  • Informational Annex prepared by the IMF.

  • Press Release, summarizing the views of the Executive Board as expressed during its April 8, 2013 discussion of the staff report that completed the review.

  • 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:

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

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©2013 International Monetary Fund

Front Matter Page

March 29, 2013



Executive Summary

The authorities remain committed to the policy reforms they have been implementing since May 2012. Notwithstanding growing public complaints and protests about the rising cost of living, the authorities reiterated their commitment to stay the course of policy reforms to the Managing Director of the Fund when she visited Malawi in early January 2013. While they have made concessions in response to political and social pressures (e.g., the recent wage increase to striking civil servants), the cornerstones of the reforms—the market based exchange rate regime and automatic adjustment mechanism for fuel prices—have remained unchanged.

The policy reforms have begun to yield some positive results. Increased availability of foreign exchange—including through the re-establishment of external credit lines—has regularized the supply of fuel and allowed increased imports of inputs for production. A broad spectrum of private sector stakeholders met by the mission noted a significant increase in the cultivation of export crops during the current season which, combined with good rains so far, bodes well for a good harvest beginning in March/April.

Prices and the exchange rate are both expected to stabilize with the onset of the food harvest and the tobacco purchase season. Year-on-year inflation reached 34.6 percent in December 2012, reflecting the impact of the depreciation of the exchange rate and a contraction in food production last season. The kwacha has depreciated by an additional 33 percent against the U.S. dollar following the initial 33 percent devaluation in May 2012.

Policy continuity is critical for curbing inflation and for a sustained recovery. Policy discussions focused on measures to maintain a tight monetary policy until inflation pressures recede, and on the need for fiscal restraint to contain aggregate demand in order to stabilize the exchange rate and begin to accumulate international reserves. Risks to the program include adverse weather conditions and policy reversals in the lead up to the 2014 general elections. Policy reversals would jeopardize the prospects for recovery and sustained growth.

Performance in relation to program targets has been broadly satisfactory. All the quantitative performance criteria for end-December 2012 were met, while the indicative targets on reserve money and social spending were missed by small margins. Progress on the implementation of structural reforms has also been satisfactory.

Staff recommends completion of the second review, based on performance thus far and on the authorities’ policy commitments.

Approved By

David Owen and Dhaneshwar Ghura

Discussions were held in Lilongwe and Blantyre during February 5–19, 2013. The mission was led by Mr. T. Tsikata (AFR), and included Messrs. O. Adedeji and M. Ghazanchyan and Ms. J. Peng (all AFR), Mr. M. Raissi (SPR), Mr. A. Mialou (STA), and Ms. R. Randall (Resident Representative). The mission met with Minister of Finance Dr. Ken Lipenga, Minister of Economic Planning and Development Mr. Goodall Gondwe, Governor of the Reserve Bank of Malawi Mr. Charles Chuka, Chief Secretary Mr. Bright Msaka (Office of the President and Cabinet), Secretary to the Treasury Mr. Randson Mwadiwa, other senior government and RBM officials, representatives of civil society organizations, financial institutions, private sector enterprises, trade unions, and Malawi’s development partners. Ms. H. Teferra (OED) participated in the discussions, and the mission was assisted by Mr. S. Banda (Economist in the office of the IMF Resident Representative).




    • A. Recent Economic Developments

    • B. Performance under the Program


    • A. Exchange Rate Policy

    • B. Monetary Policy and Financial Sector Issues

    • C. Fiscal Policy

    • D. Business Climate and International Competitiveness




    • 1. Selected Economic Indicators, 2009–16

    • 2a. Central Government Operations, 2009/10–2015/16

    • 2b. Central Government Operations, 2009/10–2015/16

    • 2c. Central Government Operations, 2012/2013

    • 3a. Monetary Authorities’ Survey, 2009–16

    • 3b. Monetary Survey, 2009–16

    • 4a. Balance of Payment, 2009–16

    • 4b. Balance of Payments, 2009–16

    • 5. External Financing Requirement and Sources, 2009–17

    • 6. Proposed Schedule of Disbursements Under ECF Arrangement, 2012–15

    • 7. Indicators of Capacity to Repay the Fund, 2012–22

    • 8a. Quantitative Targets (2012)

    • 8b. Quantitative Targets (2013–14)

    • 9. Prior Actions and Structural Benchmarks, 2012–13


    • 1. Real Sector Developments and Prospects, 2009–15

    • 2. Fiscal Developments, 2009/10–2012/13

    • 3a. Interest Rates and Liquidity Developments

    • 3b. Monetary Developments, 2010–15

    • 4. External Sector Developments


    • I. Letter of Intent

      • Attachment I. Memorandum of Economic and Financial Policies

      • Attachment II. Technical Memorandum of Understanding

    • II. Real Exchange Rate Assessment

    • III. Correlation and Cluster Analyses of Monetary Indicators, Price Indices and the Exchange Rate

    • IV. Malawi’s National Export Strategy


    • I. Relations with the Fund

    • II. Joint Managerial Action Plan

    • III. Relations with the African Development Bank Group

    • IV. Statistical Issues

Front Matter Page

Press Release No. 13/108


April 8, 2013

International Monetary Fund

Washington, D.C. 20431