First Review Under the Three-Year Extended Credit Facility Arrangement and Requests for Modification and Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Malawi


First Review Under the Three-Year Extended Credit Facility Arrangement and Requests for Modification and Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Malawi

Relations with the Fund

(As of October 5, 2018)

Membership Status

Joined: July 19, 1965; Article VIII

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Latest Financial Arrangements:

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Overdue Obligations and Projected Payments to Fund1

(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 Post-Catastrophe Debt Relief (PCDR): Not Applicable.

Safeguards Assessments:

The 2018 update assessment found that the financial reporting and audit mechanisms continue to adhere to international practices, as noted during the 2016 monitoring visit. However, the RBM’s governance arrangements and autonomy continue to be undermined by weak legal provisions, significant credit to the government, and the presence of government officials on the Board and audit committee. Further, risks in the area of foreign reserves management remain elevated due to limits that are inconsistent with leading practices and lapses in oversight.

Exchange Arrangements:

In May 2012, the government liberalized the foreign exchange regime, devalued the kwacha by about 33 percent, and adopted a de jure floating exchange rate regime. Since May 2012, the RBM has not set a target rate and allowed substantial volatility in the exchange rate. However, the U.S. dollar exchange rates have shown remarkable stability since October 2016, at a rate of around MK 730/US$. Accordingly, the de facto exchange rate arrangement is classified as “stabilized”. Inflows of foreign exchange have allowed for a strong increase in international reserves. The exchange regime is free of restrictions and multiple currency practices.

Article IV Consultation:

The Executive Board concluded the last Article IV consultation with Malawi on April 30, 2018.

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). An FSAP development module was conducted in mid-2017.

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, based on a September 2003 mission, was published in October 2004.

Technical Assistance: (since 2015, as of October 15, 2018)

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Joint Managerial Action Plan

(As of October 5, 2018)

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Relations with the African Development Bank

(As of October 2018)

The African Development Bank (AfDB) operations in Malawi date back to 1969. The Bank Group Malawi Country Office was opened in 2007. As of September 30, 2018, the Bank had provided significant and diversified support to Malawi, with cumulative commitments worth UA 898 million (about US$1.3 billion) to finance 108 operations, including thirteen studies and two lines of credit.

The AfDB’ s Malawi Country Strategy Paper (CSP) covering the period 2013–17 was fully aligned with the second Malawi Growth and Development Strategy (MGDS II, 2011–16) and the Bank’s corporate priorities in the Long-Term Strategy (LTS, 2013–22). A new CSP for the period 2018-22 has been prepared and expected to be approved before the end of October 2018. The new CSP will take an integrated approach to support private sector development by focusing on key infrastructure constraints, such as water, power, and roads, as well as softer components related to private sector policy. Given the rapidly growing population, it is critical that the economy starts creating more economic opportunities that would generate increased revenues for the government to efficiently and effectively provide required social services and public goods while ensuring a dynamic and growing private sector.

During the just ended CSP period, the Bank has approved a number of projects in the water, social, agriculture, and roads sectors, as well as in economic and financial governance, in line with the CSP priorities. In 2016, the Board approved three new operations: (i) Agriculture Infrastructure and Youth in Agri-Business Project (US$22 million); (ii) Food Crisis Response Budgetary Support Program (US$16 million); and Jobs for Youth Project (US$12 million). These interventions aim at improving 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 Food Crisis Response Budgetary Support Programme helped in mitigating the impact of the drought-induced food crisis and ease fiscal pressures. In 2017, the Bank approved a technical assistance project, Nacala Rail and Port Value Addition Technical Assistance Project (US$1.7 million), which aims at creating a critical mass of model farmers through a “model farmer extension approach”, which will be supported with linkages for value addition, market access, and access to finance. During the same year, the Malawi Economic Census Project (US$1 million) was approved to support the National Statistical Office (NSO) to build capacity for conducting an economic census. In January 2018, the Bank approved the Promoting Investment and Competitiveness in the Tourism Sector Project (US$9.8 million) to create an enabling environment for investment in the tourism sector through enhanced capacity in planning and business management, and improved governance in natural resources management. Two more projects are expected to be approved by end of October 2018. The projects are the Shire Valley Transformation Programme (US$34.3 million), and the Nkhata Bay Water Supply Project (US$ 14.7 million).

The Bank has also provided Malawi with quick disbursing budget support. Following Government’s re-engagement with the IMF and the approval of the US$157 million Extended Credit Facility (ECF) arrangement in July 2012, the Bank approved an ADF Grant for Crisis Response Budget Support operation, for 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, 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 to strengthen: PFM transparency and accountability, and social protection systems.

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

The Bank has been working with development partners in strengthening Malawi’s public finance management (PFM) systems. In support to the implementation of PFM reforms and in strengthening internal control systems following ‘cashgate’, the Bank approved two PFM Institutional Support Projects (US$7 million), one of which closed in June in 2018 and the other expected to close in May 2019. Among others, the PFM support is focusing on tax administration reforms (upgrading of the Automated System for Customs Data—ASYCUDA, putting in place a Tax Appeals Tribunal legislative framework, review of the Customs and Excise Act, etc.); public procurement reforms; and strengthening financial management systems, including reviewing the PFM Act, Treasury Instructions, Treasury Funds Management Guidelines, undertaking an audit of Treasury Funds, and strengthening the Integrated Financial Management Information System (IFMIS) oversight, among others.

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 2017, the Bank prepared a feasibility study for Kholombidzo Hydro Power Project, which will provide a foundation for pipeline operations. An agriculture financing feasibility study currently underway is expected to be concluded at end-2018. The study aims to assess the financing needs of smallholder farmers with the view of proposing and assessing the viability of different financing options, including the establishment of an Agriculture Cooperative Bank, and outlining the implementation costs and modalities for those options, with the view of boosting agricultural productivity along the value chain.

In addition, the Bank is supporting the Private Public Partnership Commission (PPPC) with a grant to build PPP negotiation capacity through a “hot line” arrangement, whereby the PPPC can tap into international legal services to advise on PPP transactions. The Bank has provided technical assistance to the Malawi Postal Cooperation for the development of the E-Post Strategy and Action Plan. It is to be noted that the Bank, in recent years, has undertaken a number of analytical studies, including Domestic Resource Mobilization Study for Malawi, and provided TA to the Reserve Bank of Malawi to strengthen capacity in macro-economic forecasting; prepared a Public Expenditure Review with the World Bank and other development partners; and provided support for undertaking of the Expenditure Tracking Study for Malawi.

Looking forward, the Bank plans to scale up its lending to the energy sector with a view to address power shortages. The pipeline of energy sector projects includes the Songwe River Basin Development Project, the Malawi-Zambia Power Inter-connector Project, and the Kholombidzo Hydro Power Project. The Bank continues to engage with the World Bank and other partners for co-financing arrangements of its pipeline operations. In view of this, the Bank is taking the lead in mobilizing donor resources and private finance for the Songwe Hydro Power Project, a multinational project with Tanzania. It will also promote private investment in the energy sector, through PPPs and the use of innovative financing instruments, such as Partial Risk Guarantees.

The Bank will continue to support the agriculture sector, and to this effect, it is working on the Shire Valley Transformation Programme in 2018, for co-financing with the World Bank. The project will cover 42,000 hectares and is expected to transform Malawi’s agriculture sector by boosting production of high value crops and developing value chains. Currently the project preparatory studies are underway and are being co-financed with the World Bank.

Statistical Issues

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Malawi: Table of Common Indicators Required for Surveillance

(As of October 5, 2018)

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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).

These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.

Reflects the assessment provided in the data ROSC or the Substantive Update (published on March 10, 2004, and based on the findings of the mission that took place during May 8–21, 2003) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording, respectively, are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 9, except referring to international standards concerning, respectively, source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.