Malawi: Ninth Review Under the Extended Credit Facility Arrangement and Request for Waivers for Nonobservance of Performance Criteria—Informational Annex

Ninth Review Under the Extended Credit Facility Arrangement and Request for Waivers for Nonobservance of Performance Criteria


Ninth Review Under the Extended Credit Facility Arrangement and Request for Waivers for Nonobservance of Performance Criteria

Relations with the Fund

(As of April 30, 2017)

Membership Status

Joined: July 19, 1965; Article VIII

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Outstanding Purchases and Loans:

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Latest Financial Arrangements:

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Overdue Obligations and Projected Payments to Fund 1

(SDR Million; based on existing use of resources and present holdings of SDRs):

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Implementation of HIPC Initiative:

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Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Implementation of Multilateral Debt Relief Initiative (MDRI):

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The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

Implementation of Catastrophe Containment and Relief (CCR): Not Applicable.

As of February 4, 2015, the Post-Catastrophe Debt Relief Trust has been transformed to the Catastrophe Containment and Relief (CCR) Trust.

Safeguards Assessments:

The 2012 safeguards assessment confirmed that legal reforms were required to address the RBM’s lack of operational autonomy. The assessment also reiterated the need to enhance oversight of foreign reserves management, expand disclosures contained in the financial statements and strengthen data compilation procedures. Since then, the RBM has taken steps to ensure that its external audit and financial statements are accordance with international standards. The RBM continues to publish its financial statements while the internal audit function benefitted from implementing the recommendations of an external quality review. Legal amendments were also enacted in 2015 to limit direct advances to the government and strengthen audit and accountability requirements.

The safeguards monitoring visit to the RBM in February 2016 found that all recommendations of the 2012 assessment were implemented, with the exception of the remaining weaknesses in the RBM Act that continue to impede on the bank’s autonomy. Steps are underway to address control weaknesses identified in the banking operations. The 2016 monitoring assessment recommended that the RBM’s internal audit function assess the operating effectiveness of the enhanced controls through special audits. Also, revision of the investment policy is needed to limit concentration of investments in institutions with a credit rating below investment grade.

Exchange Arrangements:

The de facto exchange rate classification of a floating arrangement is under review. In May 2012, the government liberalized the foreign exchange regime, devalued the kwacha by about 33 percent, and adopted a floating exchange rate regime. Since May 2012, the RBM has not set a target rate and has allowed substantial volatility in the exchange rate. Official actions continue to play a role in influencing the exchange rate, but the exchange rate movements are largely market determined and staff found that the authorities’ practice of determining the exchange rate of commercial banks through moral suasion has ceased, thereby removing the official action that gave rise to the multiple currency practice identified in August 2006 and manifested by the significant spread between the commercial bank and foreign exchange bureau rates. Malawi maintains a system free from restrictions on the making of payments and transfers for current international transactions.

Article IV Consultation:

It is expected that the next Article IV consultation with Malawi will take place on the standard 12-month cycle. The Executive Board concluded the last Article IV consultation with Malawi on December 11, 2015.

Financial Sector Assessment Program (FSAP), Reports on Observance of Standards and Codes (ROSCs), and Offshore Financial Center (OFC) Assessments:

A joint team of the World Bank and the International Monetary Fund visited Malawi under the FSAP program during two missions in July and December 2007. The Financial System Stability Assessment (FSSA) was issued in June 2008 (SM/08/198).

Corporate Governance and Accounting and Auditing ROSC missions visited Malawi in February and June 2007.

An update on the FAD mission on the fiscal transparency module was issued in March 2007. A ROSC on the data module was published in February, 2005.

Technical Assistance:

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Joint Managerial Action Plan

(May 9, 2017)

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Relations with the African Development Bank Group

(As of May, 2017)

African Development Bank (AfDB) operations in Malawi date back to 1969. The AfDB Malawi Field Office was opened in 2007. As at 31st March, 2017, the Bank had provided significant and diversified support to Malawi, with cumulative commitments worth UA 889.6 million (about US$1.2 billion) to finance 105 operations including 13 studies and 2 lines of credit.

The current Country Strategy Paper (CSP) of the Bank covering 2013–17 is fully aligned to the second Malawi Growth and Development Strategy (MGDS II) covering the period 2011–16 and the Bank’s corporate priorities in the Long-Term Strategy (LTS, 2013–22). The CSP, currently under implementation, focuses on two pillars: (i) addressing infrastructure bottlenecks to competitiveness and growth; and (ii) supporting actions to expand private sector investment and trade.

To date, the Bank has approved projects in the water, social sector, agriculture and roads sectors and in Public Financial Management in line with the CSP priorities. In 2016, three new operations were approved by the Board: (i) Agriculture Infrastructure and Youth Agri Business Project (US$22 million); (ii) Food Crisis Response Budgetary Support Program (US$16 million); and the Jobs for Youth Project (US$12 million). The aim of these interventions is to improve agriculture infrastructure for enhanced productivity and create employment and income earning opportunities for the youth through skills development in agri-business and other key economic activities. The objective of the Food Crisis Response budgetary support is to mitigate the impact of the drought induced food crisis and ease the fiscal pressures.

The Bank plans to scale up its lending to the energy sector with a view to address the power shortages, a major constraint to Malawi’s growth. The pipeline of energy sector projects, include the Malawi-Mozambique Power Inter-connector Project to be co-financed with the World Bank, the Kholombidzo Hydro Power Project and the Songwe River Basin Development Project. The Bank will also promote private investment in the energy sector, through Public Private Partnerships (PPPs) and the use of innovative financing instruments, such as Partial Risk Guarantees. In November 2016, the Bank conducted the Energy Financing Seminar in Lilongwe Malawi to disseminate information to potential investors regarding existing financing opportunities. The Bank is taking the lead in mobilizing donor resources and private finance for the Songwe Hydro Power Project, a multinational project with Tanzania.

The Bank has continued to support PFM Reforms and capacity building in coordination with other Development Partners. The PFM Institutional Support (ISP) I is nearing completion while the second phase is making steady progress and expected to be completed in 2017. Among the achievements of ISPI is the launching of the ASYCUDA World which has improved collection of revenue from custom duties. The Bank has also provided Malawi with quick disbursing budget support. Following Government’s reengagement with the IMF and the approval of a new US$157 million Extended Credit Facility (ECF) arrangement for Malawi in July 2012, the Bank approved an ADF Grant for the Crisis Response Budget Support operation for Malawi in July 2012, in the amount of US$40 million. The Bank designed the Restoration of Fiscal Stability and Social Protection (RFSSP) program whose objective was to contribute to restoring fiscal stability and enhancing public finance management in Malawi, as well as support social protection measures to mitigate the adverse social impact of the devaluation of the Kwacha and the increases in fuel and electricity prices. To support this agenda, the RFSSP had two components: (i) strengthened PFM transparency and accountability, and (ii) strengthened social protection system.

In April 2015, the African Development Fund Board approved a grant of US$30 million for the Protection of Basic Services Program. This is ring fenced Sector Budget Support, which is designed to protect critical expenditures in health, education and social protection, and improve accountability following suspension of general budget support. The grant was disbursed in one tranche in July 2015. The PBS operation was followed by the Food Crisis Response Budgetary Support in 2016. The Bank intends to provide general budget support during the medium term, which will complement the World Bank’s recently approved budget support to Malawi. The Bank will continue to coordinate closely with the IMF in the design of its budget support operations to ensure its programs are underpinned by sound macro-economic policies.

Three new operations are programmed for approval in 2017: (i) the Shire Valley Irrigation Project (US$40 million) which will be co-financed with the World Bank; (ii) Investment Promotion & Competitiveness Program (US$9.5 million); and (iii) Economic Census Capacity Building Project (US$1 million).

AfDB Ongoing Operations

The Bank’s current active portfolio includes four projects in the agriculture sector: (i) Agriculture Infrastructure Support Project; (ii) Small Holder Irrigation and Value Addition Project; (iii) Agriculture Infrastructure & Youth Agri Business; and (iv) Agricultural Cooperative Bank Study. There are currently three projects providing support to the social sector and for economic empowerment: (i) the Competitiveness and Job Creation Project, which seeks to improve the capabilities and the competitiveness of the private sector as well as increase export diversification and job creation; (ii) Support to Higher Education Science & Technology Project which aims to increase access to technical, entrepreneurship, vocational and training (TEVET) and higher education in Malawi, with particular emphasis on Information and Communication Technology (ICT) and (iii) Jobs for Malawi Youth targeting the youth. In the transport sector the Bank is supporting the Mzuzu-Nkhata Bay Road Rehabilitation Project and the Multinational Nacala Road Corridor Phase IV. In the water sector, the Bank is providing support for two projects: the Sustainable Rural Water and Sanitation for Improved Health and Livelihood Project and the Mzimba Integrated Urban Water Project of US$5 million, co-financed with OFID. The two on-going Institutional Support Projects are providing support for the Public Financial Management Reform Program. Currently, the overall Bank portfolio is rated satisfactory. The Bank’s Malawi Field Office is working closely with the Government to ensure continued improvement in project implementation efficiency for enhanced development results.

The Bank has also provided support for non-lending activities, including feasibility studies and analytic work to inform the design of new operations and policy dialogue. In 2013, the Bank collaborated with the World Bank and other partners on the Public Expenditure Review. The Bank has in addition provided support for the Expenditure Tracking Study. In addition, the Bank is supporting the Private Public Partnership Commission (PPPC) with a grant to implement the Capacity Building and Assessment of the Legislative and Institutional Framework for PPPs in Malawi. The Bank has provided technical assistance to the Malawi Postal Cooperation for the development of the E-Post Strategy and Action Plan. The Bank also undertook the Domestic Resource Mobilization Study for Malawi in 2013/2014 and provided TA to the Reserve Bank of Malawi to strengthen capacity in macro-economic forecasting.

The Bank shall commence preparation of a new Country Strategy Paper soon, which will be aligned with Malawi’s new National Development Plan and the Bank’s Long Term Strategy, in particular, the “High Fives” priorities, which include “Light up and Power Africa”, “Feed Africa”, and “Improve the Quality of Life for the People of Africa”.

Statistical Issues

Malawi—Statistical Issues Appendix

As of May 20, 2016

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Malawi: Tables of Common Indicators Required for Surveillance

(As of May 24, 2017)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discounts rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).