Malawi: Request for Disbursement Under the Rapid Credit Facility and Request for a Staff Monitored Program with Executive Board Involvement-Press Release; Staff Report; and Statement by the Executive Director For Malawi
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International Monetary Fund. African Dept.
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Publication Date:
23 Nov 2022
eISBN:
9798400225970
ISBN:
9798400225970
Language:
English
Keywords:
physical capital; net financing; IMF TA; macroeconomic vulnerability; public funds; Debt service; Debt sustainability; Global
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1. The democratic change in government in mid-2020 marked a break from the past, but legacy issues have weighed on the current administration. President Lazarus Chakwera’s long-term growth strategy “Malawi Vision 2063” aims to address the causes underlying the lack of sustained growth and heavy reliance on aid over decades. The economy has, however, been paralyzed with unsustainable debt with external debt service representing about 56 percent of exports. The accumulation of public debt started after the 2013 “Cashgate”1 as on-budget support shifted to off-budget support, and the forgone funding of the budget was replaced by domestic borrowing and a gradual increase in external nonconcessional borrowing.2 The Chakwera administration recognized that a new Extended Credit Facility (ECF) arrangement and its catalytic role would be vital in restoring macroeconomic stability. Responding to the ECF request submitted in April 2021 was, however, not immediately possible due to the need to address unsustainable debt. The authorities have also been taking corrective actions to resolve noncomplying disbursements (“misreporting”)3 under the 2018 ECF arrangement. As such, the country is not in a position to implement an Upper Credit Tranche (UCT)-quality economic program and needs to build a track record for a UCT-quality arrangement.

Abstract

1. The democratic change in government in mid-2020 marked a break from the past, but legacy issues have weighed on the current administration. President Lazarus Chakwera’s long-term growth strategy “Malawi Vision 2063” aims to address the causes underlying the lack of sustained growth and heavy reliance on aid over decades. The economy has, however, been paralyzed with unsustainable debt with external debt service representing about 56 percent of exports. The accumulation of public debt started after the 2013 “Cashgate”1 as on-budget support shifted to off-budget support, and the forgone funding of the budget was replaced by domestic borrowing and a gradual increase in external nonconcessional borrowing.2 The Chakwera administration recognized that a new Extended Credit Facility (ECF) arrangement and its catalytic role would be vital in restoring macroeconomic stability. Responding to the ECF request submitted in April 2021 was, however, not immediately possible due to the need to address unsustainable debt. The authorities have also been taking corrective actions to resolve noncomplying disbursements (“misreporting”)3 under the 2018 ECF arrangement. As such, the country is not in a position to implement an Upper Credit Tranche (UCT)-quality economic program and needs to build a track record for a UCT-quality arrangement.

Context

1. The democratic change in government in mid-2020 marked a break from the past, but legacy issues have weighed on the current administration. President Lazarus Chakwera’s long-term growth strategy “Malawi Vision 2063” aims to address the causes underlying the lack of sustained growth and heavy reliance on aid over decades. The economy has, however, been paralyzed with unsustainable debt with external debt service representing about 56 percent of exports. The accumulation of public debt started after the 2013 “Cashgate”1 as on-budget support shifted to off-budget support, and the forgone funding of the budget was replaced by domestic borrowing and a gradual increase in external nonconcessional borrowing.2 The Chakwera administration recognized that a new Extended Credit Facility (ECF) arrangement and its catalytic role would be vital in restoring macroeconomic stability. Responding to the ECF request submitted in April 2021 was, however, not immediately possible due to the need to address unsustainable debt. The authorities have also been taking corrective actions to resolve noncomplying disbursements (“misreporting”)3 under the 2018 ECF arrangement. As such, the country is not in a position to implement an Upper Credit Tranche (UCT)-quality economic program and needs to build a track record for a UCT-quality arrangement.

2. Meanwhile, Malawi’s protracted BOP needs snowballed, and the country became extremely vulnerable to external shocks. End-2021 gross official reserves, including encumbered deposits, were projected at US$394 million at the time of the 2021 Article IV consultation. The Special Audit completed in June 2022 reported that gross official reserves after adjusting for encumbered deposits stood at US$72 million, resulting in large negative net international reserves (NIR) of - US$1.3 billion at end 2021.

3. Moreover, Malawi is currently facing acute food insecurity. Following the COVID-19 pandemic, the economy was hit hard by consecutive cyclones in the first half of 2022, highlighting Malawi’s vulnerability to weather-related shocks. The government implemented a value-added tax (VAT) exemption on cooking oil in 2022 to mitigate rising food prices—a targeted approach in the face of broad increases in food prices. Limited access to farm inputs due to higher input prices affected production and contributed to high food prices. Food inflation has been on the rise since 2017 and peaked at 33.7 percent in September 2022. The situation will likely worsen further in the months ahead: the current planting season of maize (November through December), the locally produced main staple food, is expected to suffer from high fertilizer and seeds prices. As a result of the multiple shocks, about 20 percent of the population are projected to be acutely food insecure at the “Crisis” level (Integrated Food Security Phase Classification (IPC) Phase 3 or higher) during the 2022/23 lean season (October 2022-March 2023). The population living at the crisis level more than doubled since last year.4

4. The authorities have already taken measures that demonstrate their commitment to macroeconomic adjustment and structural reforms. Recent actions include the start of fiscal consolidation in the FY2022/23 budget in March 2022, the 200-basis points increase in the monetary policy rate in April (and again in October) and the 25-percent devaluation in the Kwacha. Moreover, a sizeable debt operation, combined with donor support, is expected to bring Malawi back to moderate risk of debt distress in the medium term and help cover urgent balance-of-payments needs. To address governance issues, the authorities completed special audits on foreign exchange reserves, COVID-spending, as well as on public funds related to infrastructure projects. These activities also demonstrate the current administration’s strong commitment to fight corruption.

5. Malawi requested US$88.327 million (50 percent of quota) under the Food Shock Window of the Rapid Credit Facility as well as a Staff Monitored Program with Executive Board Involvement (PMB). The financing will help Malawi address urgent balance of payments needs related to the food crisis. The PMB will support the government’s macroeconomic adjustment and structural reforms to restore macroeconomic stability and provide the foundation for inclusive growth.

6. Risks to the program are elevated and call for strong implementation of the authorities’ policy and reform agenda. The authorities are committed to macroeconomic adjustment and structural reforms as indicated in the Letter of Intent and the Memorandum of Economic and Financial Policies (Appendix I).

Recent Economic Developments

7. A sequence of external shocks has exacerbated Malawi’s fragility. Economic growth in 2022 is projected at 0.8 percent (compared with 3.5 percent at the time of the 2021 Article IV consultation). During the first quarter of the year, Malawi faced two tropical cyclones, rising commodity prices, and forex shortages—all contributing to an imminent BOP crisis. Cyclones Ana and Gombe ravaged crops and damaged infrastructure, including the main hydropower plant, thereby increasing fuel import needs to augment electricity sources (Annex I). The war in Ukraine has put pressure on energy and food prices, increasing risks to severe food insecurity. The ongoing energy crisis—chronic fuel shortages and extended electricity blackouts—has further dampened economic activity. Despite the devaluation, a foreign exchange shortage remains and contributes to a de facto rationing of foreign exchange for imports by commercial banks.

8. Pressure on the exchange rate and inflation is mounting. Inflation reached 25.9 percent in September 2020. Rising food and fuel prices, as well the passthrough effect of the kwacha depreciation, contributed to food and nonfood inflation, which accelerated to 33.7 percent and 18.3 percent, respectively. Despite the devaluation, foreign exchange shortages persist and expectations of further devaluation weigh on the exchange rate. Meanwhile, monetary base growth remains high at 24 percent at end-August, largely due to high net domestic financing of fiscal deficit, which averaged 8.6 percent in FY2020/21 and FY2021/22.

9. Gross reserves remain extremely low. Gross reserves at end 2021 stood at US$72 million, a large downward revision from US$394.0 million in the 2021 Article IV Consultation because of the exclusion of encumbered deposits in line with the definition of reserve assets in the Monetary and Financial Statistics Manual. This is precariously low considering high debt service, difficulty in renewing swaps, and further utilization of the TDB facility to sustain fuel imports. To secure more foreign exchange purchases, the RBM implemented a surrender requirement of 30 percent of exports5 and, in May 2022, devalued the Malawi Kwacha. That said, external debt service in 2022 would be US$719 million. Without debt treatment, debt service is projected at about 55.6 percent of exports of goods and services.

Outlook and Risks

10. Economic growth would gradually strengthen. Growth would recover to 2.4 percent in 2023. Medium-term growth is now projected at 4.5 percent (0.4-percentage point higher than in the Article IV consultation) to incorporate the ambitious reform agenda of the government despite the frequency of weather-related shocks assumed in the baseline. Fiscal consolidation, monetary tightening, and reforms that will bring the economy back to a sustainable path are expected to support economic recovery in the medium term. Improvements in agricultural productivity and the services sector, investment in human and physical capital, and adaptation to climate change are assumed in the long-run growth outlook.

11. Inflationary pressures would be contained, helped by re-anchoring expectations in line with the tightening of the monetary and fiscal policy stance. The RBM will contain money growth and align the policy rate with inflation, keeping a positive real rate and raising reserves (¶22). RBM purchases of FX in the market to build reserves will be sterilized accordingly (¶22). At the same time, the envisaged fiscal consolidation (¶14) is expected to contribute to disinflation. Inflation is thus projected to decline to 20.4 percent by end-2023 to further moderate to 6.5 percent over the medium term. The projected level and persistence of inflation in the medium term incorporates vulnerabilities to climate change and natural disasters.

12. Gross reserves would recover to 3.7 months of imports over the medium term. The RBM will accumulate reserves by purchasing foreign exchange, undertaking a debt treatment that would lighten the external debt service burden, and exiting from quasi-fiscal operations. Moreover, a successful implementation of a strict reform program by the authorities, helped by debt restructuring and nondebt-creating flows, is indispensable in allowing the RBM to sustain positive net foreign exchange inflows to build reserves.

13. The balance of risks is tilted to the downside (Annex II). The outlook assumes that sufficient nondebt-creating flows (i.e., debt relief and grants) will help cover urgent balance of payments needs and support the authorities’ efforts to restore macroeconomic stability and debt sustainability. The outlook also assumes that the authorities maintain a strong commitment to macroeconomic adjustment and structural reforms. Risks to this outlook include a delay in nondebt-creating inflows as well as weaker-than-expected policy implementation, which would create financing gaps, monetary financing of fiscal deficits, and pressure on inflation and the exchange rate. If these risks materialize, macroeconomic stability may not be restored. The outlook also assumes that weather-related events and other external shocks remain manageable. Other risks to the outlook include supply chain disruptions and a further surge in fuel, food, and fertilizer prices, resulting in additional financing needs and increasing risks of food insecurity. Upside risks to the outlook include the start of mining exports and a successful implementation of export diversification / formalization of informal exports, which could lead to increases in exports relative to the baseline. Continued improvements in tax administration would also be an upside risk to the outlook.

Policies Supporting the Program

A. Fiscal Policy: Containing Domestic Borrowing and Regaining Fiscal Discipline

14. The revised FY2022/23 budget will support ambitious fiscal adjustment. The budget law will be revised at the mid-year review to reflect the latest projections on revenue performance and the execution of development expenditure. The authorities aim to reduce the domestic primary deficit to about 0.6 percent of GDP, from 4.1 percent of GDP in FY2021/22. Net domestic financing is projected to decline to 5.6 percent of GDP in FY2022/23 from 7.4 percent of GDP in FY2021/22.

15. The significant fiscal tightening is critical to help reach a debt-stabilizing primary balance as quickly as possible. The primary fiscal balance would improve by an annual 11/2 percent of GDP over the medium term to stabilize debt dynamics. This fiscal consolidation reflects a comprehensive strategy that places equal weights on expenditure containment and revenue improvement. The authorities also plan to adopt a Medium-Term Expenditure Framework (MTEF) that is consistent with the fiscal anchor.

16. Implementation of the domestic revenue mobilization strategy (DRMS) would contribute significantly to meeting Malawi’s large spending needs. Additional income tax brackets and advance income tax were already introduced in 2022. To further boost revenue (currently standing at just 13.4 percent of GDP), the authorities are committed to: introduce the presumptive tax for small businesses, rationalize the list of items subject to preferential General Sales Tax (GST) treatment, review tax incentive regimes to revamp the Taxation Act and Customs and Excise Act, strengthen the withholding tax regime, introduce measures to address Base Erosion and Profit Shifting (BEPS), reform excise tax rates; and continue efforts to improve tax administration such as the online rollout of the Integrated Tax Administration System (ITAS), also called Msokho. The design and implementation of these measures will have to proceed rapidly to deliver the planned consolidation as scheduled. Additional measures are contemplated to improve nontax revenues. These include reviewing fees and charges to ensure that they reflect full cost recovery and ensuring that Ministries, Departments, and Agencies (MDAs) account for their revenue collections in IFMIS and remit nontax revenue collections to Malawi Government consolidated (MG1) account, the main source of funding of all its operations.

17. Expenditure rationalization will be implemented without reducing support to the poor and vulnerable. The authorities are broadly carving out social expenditure from the required fiscal consolidation, including to mitigate the impact of increased food insecurity. To safeguard social protection and protect the vulnerable, including from the impact of higher food price inflation, a floor on social spending is set as an indicative target (IT) under the program. This spending will be audited in the context of annual fiscal reporting to the National Assembly. The IT covers contributions to a number of social safety net spending programs including the Social Cash Transfer Program (SCTP) and the Affordable Inputs Program (AIP). At the same time, steps have been taken to prevent cost overruns from escalating fertilizer prices in the AIP, the Government subsidy program, through augmentations of farmer contributions and capping the Government Subsidy (MEFP ¶22 and MEFP Box 1). In the medium term, with the support of development partners, the AIP is set to be phased out and replaced by the SCTP and public works programs. The wage bill will be rationalized through a hiring freeze (excluding frontline service delivery staff in health and education) and the strengthening of approval processes for payroll and pension changes.

18. Enhanced cash management and commitment controls are the cornerstone of the program. In the past, optimistic revenue projections, coupled with weak commitment controls, led to the accumulation of sizeable arrears particularly from multiyear projects and utility bills. With the Ministry of Finance and Economic Affairs (MOFEA) lacking a full picture of the government’s commitments, monthly budget releases incentivized the incurrence of commitments outside of the Integrated Financial Management Information System (IFMIS). This issue has been compounded by limited disciplinary measures to sanction officers who engaged in this practice and concentration of controls at the payments rather than at the commitment stage. There was also a backlog of bank reconciliations that has reduced the credibility of public finances. A flow chart has been elaborated to guide and strengthen the cash management and debt issuance. (MEFP ¶24 and MEFP Text Figure 1).

19. Implementation of the new IFMIS, institutionalizing reporting, and expanding its coverage are critical for improved budget execution and strong commitment controls. The rolling out of the new IFMIS to all MDAs from July 2021 and other Public Financial Management (PFM) reforms including the interim Electronic Funds Transfer (EFT) for government payments will help improve budget preparation, cash management, commitment controls, banking arrangements, accountability, and payment efficiency (MEFP ¶24). The success of the fiscal adjustment program relies heavily on comprehensive and timely reporting, and sound commitment controls. The success of the IFMIS system requires an expansion of its coverage, especially to include all national government cash inflows and outflows.

20. The authorities intend to clear the backlog of arrears. The authorities have verified arrears of national budget entities up to June 30, 2020; and will be verifying those up to March 31, 2022 (SB). The authorities are preparing an arrears clearance strategy so that settlement respects the limits of the fiscal framework and available resources. Going forward, quarterly allotments and contract management would help the government prevent further accumulation of arrears. This will allow MDAs to commit up to this amount through IFMIS. MDA payments will be limited to monthly cash releases, aligned with allotments.

21. Strengthening the oversight of state-owned enterprises (SOEs) is also important. Weak oversight and financial reporting jeopardize adequate monitoring and management of risks to the budget and public debt from SOEs. In compliance with the new PFM Act, the authorities plan to initiate detailed reporting for high-risk SOEs, undertake regular monitoring of the management accounts of relevant SOEs, and prepare an annual consolidated report of all SOEs (MEFP ¶23). This will prevent financial slippages and fiscal risks stemming from public entities.

B. Achieving Price Stability and Maintaining Financial Soundness

22. The RBM will further tighten its monetary policy stance to achieve price stability (MEFP ¶25). Monetary policy will remain anchored at containing reserve money growth while building FX reserves. To this end, the RBM is committed to (i) align the monetary policy rate with inflation to ensure positive real returns on government securities; (ii) raise required reserves if needed; and (iii) raise the discount rate to discourage banks from accessing the discount window. The RBM has demonstrated its commitment by raising the monetary policy rate by 200 basis points in the April monetary policy committee (MPC) meeting; and another 200 basis points to 18 percent (and the discount rate to 20 percent) in the October MPC meeting. Further increases will be implemented as needed to ensure that these rates will move into positive territory in real terms. In the medium term, the RBM is committed to maintaining the real interest rate below the growth rate to support private-sector led growth.

23. The RBM will remain vigilant to ensure financial sector stability. The RBM’s and commercial banks’ large exposures to government securities pose potential risks to the financial sector given the level of domestic debt. The banking system’s exposure to the government through securities and swap operations will be closely monitored through timely submission of Standardized Report Forms (SRFs). In addition, loan and collateral quality will be reassessed to promote financial sector stability (MEFP ¶26).

C. Rebuilding External Buffers

24. The RBM is committed to a reserve accumulation strategy to rebuild a foreign exchange buffer (MEFP ¶27). The strategy comprises several components that aim to wind down unsustainable policies (e.g., excessive uses of currency swaps and trade credit to maintain strategic imports and quasi-fiscal operations) and engage in sustainable policy to enhance price competitiveness (Annex III) and reserve accumulation (e.g., net purchases of foreign exchange from commercial banks). The RBM has already started taking appropriate measures (Box 1).

25. The RBM is committed to allow greater flexibility in the exchange rate by facilitating the price formation processes through small pilot foreign exchange auctions. The inception of this program supported by disbursements of emergency assistance is considered the most optimal timing to facilitate price formation. Developing the forex interbank market will be supported by Technical Assistance (TA) from the Fund. 6

Malawi: Reserve Accumulation Measures, 2022

  • The RBM conducted a one-off 25 percent of devaluation in May 2022.

  • The RBM began to wind down the quasi-fiscal operation of financing fuel imports in Q3 and intends to cease it by end-2022 and let Petroleum Importers Limited (PIL) take over fuel importation.

  • The RBM will wind down the use of short-term borrowing, aiming to reduce outstanding swaps from US$420 million at the end of 2021 to about US$140 million by the end of the medium term.

  • The RBM will also actively engage in purchasing foreign exchange from the market to rebuild external buffers. The RBM introduced surrender requirements (a CFM) in August 2021 (further tightened in March 2022), with an intention to wind down the requirements as the forex market normalizes.

  • In the process, the RBM will create opportunities for price discovery and enhance transparency in the forex trading, developing the forex market (SB).

D. Restoring Debt Sustainability

26. Malawi’s debt is assessed to be unsustainable (MEFP ¶28). At the time of the 2021 Article IV consultation (December 2021) Malawi’s external and overall public debt were assessed as high risk of debt distress, and unsustainable under current policies. At this time, Malawi’s external and overall public debt are assessed as in debt distress, and both external and overall public debt are unsustainable under current policies. Pre-treatment external debt service would be 55.6 percent of projected exports in 2022 (Text Figure 1). Principal debt service excluding repayments to the IMF would amount to $569 million and interest payments at $119 million in 2022. Of which, the share of commercial debt service, both principal and interest, would amount to $468 million.

27. The authorities hired debt advisors in May and started to engage in debt negotiations with commercial as well as official bilateral creditors (MEFP ¶29). As a first step under Malawi’s debt strategy, a sizeable net present value reduction of commercial debt and reprofiling of official bilateral debt (based on the Low-Income Country Debt Sustainability Framework (LIC-DSF) 5 percent discount rate) would be implemented. Since obtaining credible and specific financing assurances from bilateral official creditors is expected to take several months, a reprofiling of official bilateral debt would be expected as a second step, but in any case before a potential UCT-quality arrangement is requested. The treatment of private and official bilateral debt would bring external debt service down significantly in the near term and below the 10 percent of exports threshold by end of the medium term (Text Figure 1). Fully implementing the strategy would restore debt sustainability and improve the outlook to moderate risk of debt distress by the end of the medium term (MEFP ¶30).

28. Malawi is also improving debt management, monitoring, recording, and reporting with the support of IMF and the World Bank technical assistance (MEFP ¶31).

Text Figure 1.
Text Figure 1.

Malawi: Pre- and Post-Debt Treatment, 2022–32

(Percent)

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

E. Tackling Governance Challenges

29. The program appropriately focuses on improving data recording, reporting, and monitoring both at the MOFEA and RBM. The implementation of the new IFMIS and publication of strategic imports data are inevitable to ensure efficient use of public resources, for protecting the most vulnerable groups while containing increases in public spending. It helps mitigate governance weaknesses (SB, MEFP ¶24, 32, 37).

30. The authorities are undertaking corrective actions to help address governance weaknesses that emerged under the 2018 ECF misreporting case (MEFP ¶33). They have completed a special audit of RBM’s foreign exchange reserves for the first three reviews under the 2018 ECF arrangement in mid-June 2022, which confirmed the noncomplying disbursements under the previous ECF arrangement. In addition, the authorities have implemented corrective measures to strengthen reserve management in accordance with the 2021 Safeguards Assessment recommendations. Other measures include: improvements in PFM (¶18-19); amendments to the RBM Act; and the establishment and operationalization of the Asset Liability Management Committee (ALCO) at the RBM. The presentation of the misreporting case to the Executive Board is planned on November 16, 2022.

31. To address longstanding governance weaknesses, the authorities have been implementing a broader anti-corruption agenda. Their anti-corruption agenda is anchored on 4 Ps: Prosecuting people engaged in corruption; Preventing people from engaging in corruption; Protecting people against corruption; and Preparing for the impact of corruption. Several concrete steps taken recently include the audits which uncovered misappropriation of Covid-19 public funds (MEFP ¶34) and funds at the Export Development Fund (EDF), a wholly owned subsidiary of the RBM (MEFP ¶35). The authorities have started implementing and following up on recommendations of the audits, and are committed to undertaking a governance diagnostic exercise under the PMB, leveraging IMF technical assistance (MEFP ¶36).

F. Building the Foundation for Inclusive Growth and Resilience to Climate Shocks

32. The “Malawi Vision 2063” strategy aims for Malawi to reach upper-middle income status by 2063. It focuses on inclusive economic growth on three fronts: (i) poverty reduction, (ii) investing in human capital, and (iii) resilience in physical capital to climate shocks, including the agricultural sector. However, lack of sustained economic growth, partly due to frequent climate shocks and fast population growth, has left per capita income stagnant. These challenges are further complicated by multiple shocks, such as the COVID-19 pandemic and spillovers from the war in Ukraine.

33. Prioritizing physical and human capital investment while safeguarding the fiscal envelope is critical to achieve strong and inclusive growth. Malawi has significant and competing development needs, including strengthening the social safety net while creating fiscal space and restoring debt sustainability. Policy measures, such as raising educational attainment and financing and investing in climate change resilience, form a foundation for drivers of growth.7 The authorities’ strict adherence to the policy and reform agenda is crucial especially in the current situation (Annex I) to put Malawi’s economy on a path that delivers stronger and more inclusive growth.

Program Modalities

34. Objectives and duration of the PMB. The Staff-Monitored Program with Executive Board Involvement will help Malawi build a track-record during the debt restructuring process with its commercial and bilateral official creditors towards a policy and reform program that could be supported by an ECF arrangement. The PMB is planned for a 12-month period and will span the period November 2022 to November 2023.

35. Qualification for the Food Shock Window and PMB. Malawi faces an urgent BOP need of US$841 million over the next 12 months, which is related with the food-price shock. Malawi qualifies for the food shock window as it was identified by the Global Report on Food Crises (GRFC) as a country experiencing a food crisis and is also expected to experience a negative shock to its current account in 2022 exceeding the qualification threshold of 0.3 percent of GDP. The IMF would cover 10 percent of the external financing need for the next 12 months (Text Table 1). Due to the time needed to progress sufficiently with the debt restructuring (obtaining credible and specific financing assurances especially from bilateral official creditors, expected to take several months), Malawi is currently not in a position to immediately implement an ECF arrangement to cover its urgent financing needs. Malawi qualifies for a PMB as the country is benefiting from an ongoing concerted international effort by the international community to provide substantial new financing in support of Malawi’s economic program.

36. Access. Disbursement under the Food Shock Window of the Rapid Credit Facility would be set at 50 percent of quota (about US$88.3 million) to help cover Malawi’s large urgent financing needs (Table 7). 100 percent of access is proposed to be allocated to budget support to facilitate Malawi’s large and upfront fiscal adjustment. A respective Memorandum of Understanding between the RBM and the Ministry of Finance was signed to clarify their responsibilities for timely servicing of Malawi’s financial obligations to the IMF.

Text Table 1.

Malawi: Financing Gap, 2022Q4–2023Q41

(Millions of U.S. dollars)

article image
Sources: Malawian authorities; and IMF staff estimates.

Grants figures are preliminary and further discussions are ongoing. Tentative donors for the Multi-Donor Trust Fund are EU, US, UK, AfDB, Ireland, and Germany.

37. Policy commitments under the PMB. The policy commitments included under the PMB will cover the period between November 2022 and November 2023. Quantitative targets are set for end-December 2022 and end-June 2023. Program performance under a PMB would be monitored through semi-annual program reviews based on quantitative targets, indicative targets (MEFP Table 1), structural benchmarks (MEFP Table 2), and prior actions (MEFP Table 3).

38. Safeguards assessment. An update safeguards assessment in 2021 found deterioration of safeguards at the RBM since the 2018 assessment, reflecting inter alia findings on misreporting. This included weakened governance and oversight arrangements. A comprehensive governance reform is required to strengthen the RBM’s internal “checks and balances” and the internal controls by (i) establishing the Board as de facto main decision-making body responsible for oversight and policy formulation, and (ii) strengthening collegiality in executive management. Moreover, the RBM’s operational autonomy should be safeguarded including by prohibiting it from conducting quasi-fiscal activities. The RBM will also need to strengthen its foreign reserves management practices.

39. Capacity to Repay the Fund. Malawi’s capacity to repay the Fund would become adequate—but with significant risks—subject to full program implementation under the PMB and debt restructuring. All of the indicators on capacity to repay remain above the top quartile of past UCT-quality arrangements for PRGT programs during most of the program period (Figure 5). Total outstanding credit based on existing and prospective drawings to the IMF is projected at about 329.2 percent of quota by end-2022, equivalent to 33.7 percent of exports, and about 253.9 percent of gross official reserves. Total repayments to the IMF are also significant in 2022 (1.0 percent of exports and 7.5 percent of gross official reserves) (Table 7). Commitments by official creditors to provide additional concessional financing or grants, the authorities’ track record of servicing debt obligations to the Fund, and strong commitment of the authorities to implement the needed macroeconomic adjustment are all critical to mitigate risks.

40. Assurances from private creditors and arrears. Malawi has arrears vis-à-vis Trade Development Bank (TBD) while it is current on its obligations towards AFREXIM Bank.8 With respect to TBD’s claims, staff assesses that the requirements of the Lending Into Arrears (LIA) Policy are met, given that (i) prompt Fund support is considered essential for the successful implementation of Malawi’s adjustment program, and (ii) Malawi is pursuing appropriate policies and it is making a good faith effort to reach a collaborative agreement with its private creditors. With respect to AFREXIM Bank’s contribution to restore debt sustainability, assurances are derived from staff’s judgment that a credible process for debt restructuring is underway and such restructuring will likely deliver an outcome that restores debt sustainability to moderate risk in the medium term. With respect to both these creditors, Malawi has hired debt advisors, engaged in early discussions with its creditors on a restructuring strategy that is consistent with restoration of debt sustainability, has shared relevant information on its financial situation and its debt situation, and has given creditors an early opportunity to give input into the restructuring.

41. Risks to the Program. Reducing Malawi’s macroeconomic vulnerabilities requires a sizeable debt operation, which is risky, including due to potential delays in obtaining financing assurances especially from bilateral official creditors and comprehensive collateralization of the borrowing from AFREXIM bank. Additional risks stem from possible delays in: (i) strengthening the PFM and cash management control, (ii) scaling up of foreign exchange purchases by the RBM, (iii) scaling down of the excessive use of short-term instruments by the RBM, and (iv) addressing governance issues identified in the special audit on foreign exchange reserves or the 2021 Safeguards Assessment Report. Climate shocks represent an additional risk. Although many of the corruption cases (e.g., the misreporting case and COVID funding incident) occurred under the former government, risks to the program associated with corruption remain high. Mitigating factors include: significant fiscal tightening, the RBM’s strong commitment for further efforts for greater flexibility in the foreign exchange market, and the authorities’ implementing recommendations from the special audit, and the 2021 safeguards assessment along with undertaking a proposed governance diagnostic exercise. Staff also see that further restraining nominal wage growth while fully utilizing an increase in revenue (inflation tax) could be a fiscal contingency measure.

Staff Appraisal

42. The authorities’ policy and reform program are sound. The authorities’ objectives under the PMB are to address immediate BOP needs, put the country back on a sustainable path and set a strong foundation for achieving their long-term objective of attaining inclusive growth and building resilience to climate shocks. To achieve these objectives, the authorities’ policies will focus on ambitious fiscal consolidation to contain domestic borrowing, moving towards greater flexibility of the exchange rate, rebuilding foreign exchange reserves, undertaking a debt treatment to help restore debt sustainability, achieving price stability, maintaining financial soundness, and addressing longstanding governance weaknesses.

43. The strategy envisages an adequate mix of adjustment, financing, and debt relief. The burden sharing envisaged under the program will put Malawi on a recovery path while protecting the vulnerable and poor population. The authorities’ fiscal adjustment plan, complemented by an ambitious debt treatment, adjustment in external policies and on-budget development assistance from development partners, will help to restore debt sustainability by the end of the medium term. In the absence of fiscal space, it is critical for the authorities to prioritize expenditures to support the vulnerable, and safeguard human and physical capital accumulation through improving the efficiency of public sector investment.

44. Fiscal discipline supported by the approval of a realistic budget, an enhanced PFM system and timely production of comprehensive fiscal reports will be critical. The revised FY2022/23 budget would further reduce the domestic primary deficit. The fiscal consolidation plans, anchored on enhanced revenue mobilization, expenditure rationalization and mobilization of grants, will need to be supported by much stronger cash management and commitment controls than in the past, as well as improvements in fiscal reporting to enhance budget execution.

45. Restoring price stability and ensuring financial sector stability will help build a foundation for private-sector led growth. In this regard, the RBM needs to persist in its efforts to reduce inflation and anchor inflation expectations by containing reserve money growth and standing ready to align the monetary policy rate with inflation to ensure positive real returns on government securities, as well raising the required reserves if needed. The RBM should also remain vigilant to ensure financial sector stability given the banking sector’s large exposures to government securities and associated potential risks.

46. Rebuilding external buffers is critically important to reduce Malawi’s vulnerabilities to external shocks. The RBM’s commitment to rebuild its foreign exchange reserves requires implementation of its strategy to unwind down unsustainable policies including excessive use of swaps and trade credit to maintain strategic imports and other quasi-fiscal operations. The RBM will also need to start engaging in sustainable policies to enhance price competitiveness and reserve accumulation through net purchases of foreign exchange in relation to commercial banks.

47. Upfront debt treatment will help to bring Malawi back to moderate risk of debt distress in the medium term. The authorities’ debt restructuring strategy aims to bring external debt service down substantially through a significant treatment of commercial debt and an eventual reprofiling of official bilateral debt. A concerted effort among the authorities, their creditors and the international development partners will be crucial to ensure successful implementation of the debt restructuring strategy.

48. Addressing weakness in governance and institutions will be important priorities. In this regard, the authorities are undertaking strong corrective actions to address the misreporting under the 2018 ECF including through the special audit of RBM’s foreign exchange reserves completed in June 2022 and decisively implementing several corrective measures to strengthen foreign exchange reserve management. To address other longstanding governance weaknesses, it will be critical for the authorities to press ahead with implementation of their anti-corruption agenda anchored on the 4 Ps. The authorities have taken some specific actions thus far, including audits of Covid-19 public funds and the EDF, which uncovered misappropriation of funds, and the restructuring of ADMARC. The government should follow through with a strong implementation of the audit recommendations in order to decisively stamp out corruption. To support these efforts, the authorities are committed to undertaking a governance diagnostic exercise under program, leveraging IMF TA.

49. Staff supports the authorities’ request for a disbursement under the Rapid Credit Facility—Food Shock Window—with access equivalent to SDR 69.40 million (50 percent of quota) and a Staff Monitored Program with Executive Board Involvement. In the context of an on-going food crisis, and on the basis of a concerted effort among the authorities, their creditors and the international development partners to support Malawi, staff supports this request. Risks to the program are high but can be mitigated by the authorities’ commitment, measures taken thus far, and the government’s efforts to address socio-economic fragility and to maintain political stability.

Figure 1.
Figure 1.

Malawi: Real Sector Developments, 2010–22

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

Sources: Reserve Bank of Malawi; Ministry of Finance; and IMF staff estimates.

Figure 2.
Figure 2.

Fiscal Sector Developments, 2005–22

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

Sources: Ministry of Finance; Reserve Bank of Malawi; and IMF staff estimates.

Figure 3.
Figure 3.

Malawi: Monetary Sector Developments, 2012–22

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

Sources: Reserve Bank of Malawi; Ministry of Finance; and IMF staff estimates.

Figure 4.
Figure 4.

Malawi: External Sector Developments, 2010–22

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

Sources: Reserve Bank of Malawi; Ministry of Finance; and IMF staff estimates.

Figure 5.
Figure 5.

Malawi: Capacity to Repay Indicators Compared to EF Arrangements for PRGT Countries

(In Percent of the Indicated Variables)

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

Notes:1) T= date of arrangement approval. PPG = public and publicly guaranteed.2) Red lines/bars indicate the CtR indicator for the arrangement of interest.3) The median, interquartile range, and comparator bars reflect all UCT arrangements (including blends) approved for PRGT countries between 2010-2020.4) PRGT countries in the control group with multiple arrangements are entered as separate events in the database.

Table 1.

Malawi: Selected Economic Indicators, 2021–27

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Sources: Malawian authorities; and IMF staff estimates and projections.

The current financial year, 2021, runs from July 1, 2020 to June 30, 2021. FY2021/22 covers 1 July 2021 to 31 March 2022, to accommodate the transition to an April - March fiscal year.

Please note that government fiscal statistics are reported following the Government Finance Statistics Manual (2014) starting 2020 projections and going forward.

Domestic primary balance is calculated by subtracting current expenditures (except interest payment) and domestically-financed development expenditures from tax and nontax revenues.

Gross official reserves figures include encumbered deposits in 2021; all figures from 2022 onwards do not include encumbered deposits. Readily available gross official reserves were US$71.7 million in 2021.

Table 2a.

Malawi: Central Government Operations, 2020/21–26/271

(Billions of Kwacha)

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Memorandum items: Sources: Malawi Ministry of Finance; and IMF staff projections.

FY2021/22 covers 1 July 2021 to 31 March 2022, to accommodate the transition to an April - March fiscal year starting from FY2022/23

Farm Input Subsidy Program prior to FY20/21

Domestic primary balance is calculated by subtracting current expenditures (except interest payment) and domestically-financed development expenditures from tax and non-tax revenues.

The remaining financing gap would be filled by prospective concessional support and exceptional financing.

Table 2b.

Malawi: Central Government Operations, FY 2020/21–2026/271

(Percent of GDP)

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Sources: Malawi Ministry of Finance; and IMF staff projections.

FY2021/22 covers 1 July 2021 to 31 March 2022, to accommodate the transition to an April - March fiscal year starting from FY2022/23.

Farm Input Subsidy Program prior to FY20/21

Domestic primary balance is calculated by subtracting current expenditures (except interest payment) and domestically-financed development expenditures from tax and nontax revenues.

The remaining financing gap would be filled by prospective concessional support and exceptional financing.

Table 3a.

Malawi: Monetary Authorities’ Balance Sheet, 2021–27

(Billions of Kwacha, Unless Otherwise Indicated)

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Sources: Reserve Bank of Malawi; and IMF staff projections.

Including SDR allocation and the entire assets and liabilities of the RBM.

Table 3b.

Malawi: Monetary Survey, 2021–27

(Billions of Kwacha, Unless Otherwise Indicated)

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Sources: Reserve Bank of Malawi; and IMF staff projections.

Different treatment of external debt of reserve bank of Malawi between the past and projection periods leads to a surge in credit to private sector in 2021. This will be fixed after TA mission on the treatment of external debt.

Table 4a.

Malawi: Balance of Payments, 2021–27

(Millions of U.S. Dollars, Unless Otherwise Indicated)

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Sources: Malawian authorities; and IMF staff estimates and projections.

The IMF has adopted the Malawi National Statistics Office (NSO)’s capital and financial account data following adoption of the NSO’s current account data in 2019. Previously, the IMF’s reported series was based on staff estimates. Consequently, the IMF’s reported capital account balance increased from 3.8 percent of GDP to 11.7 percent of GDP in 2018 while financial account balance including net errors and omission decreased from 16.5 percent of GDP to 8.6 percent of GDP.

Includes estimate for project grants not channeled through the budget.

The remaining financing gap would be filled by prospective concessional support and exceptional financing.

Gross official reserves figures include encumbered deposits in 2021; all figures from 2022 onwards do not include encumbered deposits. Readily available gross official reserves for 2021 were US$71.7 in 2021.

In months of goods and nonfactor services in the following year.

2021 NIR is calculated as gross official reserves minus a sum of Use of Fund Credit, repamyments projection of medium term debt by remaining maturity, and short-term swap outstanding. From 2022 and onward, they are calculated as defined in TMU.

Table 4b.

Malawi: Balance of Payments, 2021–27

(Percent of GDP)

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Sources: Malawian authorities; and IMF staff estimates and projections.

The IMF has adopted the Malawi National Statistics Office (NSO)’s capital and financial account data following adoption of the NSO’s current account data in 2019. Previously, the IMF’s reported series was based on staff estimates. Consequently, the IMF’s reported capital account balance increased from 3.8 percent of GDP to 11.7 percent of GDP in 2018 while financial account balance including net errors and omission decreased from 16.5 percent of GDP to 8.6 percent of GDP.

Includes estimate for project grants not channeled through the budget.

The remaining financing gap would be filled by prospective concessional support and exceptional financing.

Gross official reserves figures include encumbered deposits in 2021; all figures from 2022 onwards do not include encumbered deposits. Readily available gross official reserves for 2021 were US$71.7 in 2021.

In months of goods and nonfactor services in the following year.

2021 NIR is calculated as gross official reserves minus a sum of Use of Fund Credit, repamyments projection of medium term debt by remaining maturity, and short-term swap outstanding. From 2022 and onward, they are calculated as defined in TMU.

Table 5.

Malawi: Selected Banking Soundness Indicators, 2019–22

(Percent of GDP)

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Source: Reserve Bank of Malawi.

In the total capital to total assets series, total capital refers to regulatory capital.

Table 6.

Malawi: External Financing Requirement and Source, 2022–27

(Millions of U.S. Dollars; Unless Otherwise Indicated)

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Source: IMF staff estimates.

Table 7.

Malawi: Indicators of Capacity to Repay the Fund, 2022–341

(In Percent; Unless Otherwise Indicated)

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Source: IMF staff projections.

Financing support from the IMF CCRT is recorded as a grant for debt relief.

Annex I. Food Insecurity in Malawi

Malawi’s exposure to recurring cyclones and spillovers from war in Ukraine have further exacerbated pre-existing food insecurity risks. The authorities have adopted various measures in the recently passed FY2022/23 to contain the cost of living and adopted other humanitarian relief measures in response to the Tropical Storm Ana with support from Development Partners (DPs).

1. Malawi stands to be among the countries at most risk of food insecurity ranked at the bottom quartile of the food security index. Food insecurity is a serious challenge facing SSA, and particularly in Malawi. Using the Global Food Security Index (GFSI) (2021), Malawi is ranked at the bottom quartile across three of the sub-components of the GFSI (Text Figure A.1). Malawi is particularly vulnerable to: (i) food affordability given exposure to food price shocks—due to natural disasters shocks and exchange rate passthrough, especially fuel and fertilizer prices, (ii) food quality and safety which measures nutritional quality of average diets; and (iii) food availability which assesses the sufficiency of national food supply.1

Text Figure A.1.
Text Figure A.1.

Food Insecurity in SSA and Malawi

(Global Food Security Index)

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

Source: https://foodsecurityindex.eiu.com/Home/Methodology. Please note that the higher the ranking in the index, the more food secure a country is based on the GFSI index.

2. Malawi’s exposure to recurring cyclones and spillovers from war in Ukraine have further exacerbated pre-existing food insecurity risks through various channels. In the first quarter of 2022, Malawi was hit by tropical storm Ana and tropical cyclone Gombe. The former resulted in flash floods, setting the highest recorded rainfall levels since the 1960s in Southern region and resulted in crop losses of 94,000 hectares (e.g., maize, sorghum, millet, rice). Vulnerability to natural disasters has aggravated food insecurity by further depressing food production, and other exported agricultural products (tobacco) which provided sources of foreign exchange to purchase other necessary food imports. In this context and given that Malawi is a net food importer, together with spillovers from war in Ukraine resulting in increasing food and fertilizer imports prices and supply chain disruptions, Malawi’s food availability is at risk. Put together, inflationary pressures reached double digit, are eroding the purchasing power of the poor, thus further increasing the risk of food affordability (Figure 1). For example, prices of bread and flour have spiked by 50 percent and 25 percent, respectively; and prices of cooking oil and margarine have increased by 55 percent and 40 percent, respectively. Furthermore, fuel prices are rapidly increasing, as the authorities have been actively increasing domestic energy prices, including diesel, petrol and kerosene by 31, 20 and 14, respectively.

3. The government has adopted various measures in the recently passed FY2022/23 to contain the cost of living and other social protection measures in response to cyclones with the support of Development Partners (DPs). Measures adopted in FY22/23 budget include the removal of: (i) VAT on cooking oil and drinking water; (ii) middlemen in the fertilizer procurement; and (iii) solar panel import duty. In addition, development partners are stepping in through vertical and horizontal expansion of social protection programs to support the most vulnerable; through food assistance programs, top-up to existing Social Cash Transfer Programme (SCTP) or an in-kind contribution (maize) with a cash top-up, and expanding of the distribution of the SCTP to other areas. 2

Annex II. Risk Assessment Matrix1

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Annex III. External Sector Assessment

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Appendix I. Letter of Intent

November 11, 2022

Madame Kristalina Georgieva

Managing Director

International Monetary Fund

700, 19th Street, N.W.

Washington, D.C. 20431

United States

Dear Madame Kristalina Georgieva,

In 2020, following the assumption of office by His Excellency the President Dr. Lazarus McCarthy Chakwera, we requested for a new Fund-supported Extended Credit Facility (ECF) arrangement and cancelled the existing ECF approved in April 2018, primarily going off-track at the time, to align with our developmental agenda. Since then, we have directed our efforts towards addressing the legacy of unsustainable policies and stumbling blocks that have delayed the conclusion of negotiations for the successor ECF, including unsustainable public debt and misreporting of RBM’s net international reserves under the 2018 ECF.

Following a series of shocks including the impact of the Covid-19 pandemic, two cyclones in early 2022 and spillovers from the Russia-Ukraine conflict, economic growth has slowed, foreign exchange reserves have declined to very low levels and inflation has accelerated, standing at 25.9 percent as of end-September 2022. The challenging economic conditions and erosion of purchasing power are being felt particularly by the most vulnerable Malawians, many of whom are already facing a high risk of food insecurity. Addressing this situation is our top priority in line with our long-term vision to create an inclusively wealth nation under Malawi 2063.

Against the background, we are undertaking macroeconomic adjustment and structural reforms to restore macroeconomic stability and provide the foundation for an inclusive recovery. To help achieve our objectives, we are requesting for emergency financing under the Rapid Credit Facility (RCF) -- Food Shock Window, in the amount equivalent to 50 percent of Malawi’s IMF quota, approximately US$88.3 million, to help address urgent balance of payments needs related to the global food crisis. We are also requesting the Staff Monitored Program with Executive Board Involvement (PMB) to support our efforts. This will allow us to continue to make progress on the comprehensive debt restructuring process we initiated to restore debt sustainability and build a track record with the PMB towards an IMF-supported economic program financed under an ECF. A memorandum of understanding will be signed between the RBM and the Ministry of Finance to clarify their responsibilities for timely servicing of Malawi’s financial obligations to the IMF.

The attached Memorandum of Economic and Financial Policies (MEFP) describes recent developments in the Malawian economy and sets out in detail the economic and financial policies we intend to implement under the PMB to restore macroeconomic stability, set the foundation for inclusive growth and improve the life of Malawians. Our policies to restore macroeconomic stability will focus on measures to enhance fiscal discipline, maintain price stability and financial soundness, rebuild external buffers, and restore debt sustainability. These reforms will be implemented alongside efforts to address longstanding governance weakness and corruption. Given our limited fiscal space, we will prioritize expenditure to ensure adequate support to the vulnerable by safeguarding Government’s contribution to social safety net programs such as the Social Cash Transfer Program (SCTP), and to protect investment in infrastructure.

We are confident that through the implementation of measures and policies described in the attached MEFP, we will attain the objectives of the PMB. That said, we stand ready to take additional measures that may be needed over and above those articulated in the MEFP in consultation with IMF staff in accordance with the Fund’s policy. We also assure you that we will submit all program monitoring information outlined in the attached Technical Memorandum of Understanding (TMU) on a regular and timely basis and will also share any other information that may be necessary to evaluate progress made under the PMB. We intend to make public the contents of the IMF staff report, including this letter, the attached MEFP, the TMU, the informational annex, and the debt sustainability analysis carried out by IMF and World Bank staff. As such, we authorize the IMF to publish these documents accordingly.

Yours sincerely,

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Attachments:

1. Memorandum on Economic and Financial Policies (MEFP)

2. Technical Memorandum of Understanding (TMU)

Attachment I. Memorandum of Economic and Financial Policies

Introduction

1. The Government of Malawi requested for a Fund-supported Extended Credit Facility (ECF) in early-2021, but is not in a position to implement a UCT-quality economic program. After assuming office in June 2020, the Government canceled the existing ECF initiated in April 2018, under the previous government, and requested for a new ECF arrangement to align with the new development agenda and vision to create a self-reliant nation and upper-middle income country. However, key stumbling blocks surfaced during initial engagements with the Fund staff team on a prospective ECF. These include (i) surfacing of noncomplying disbursements (“misreporting”) resulting from the provision of inaccurate information on the performance criteria on the floor of Net International Reserves (NIR) under the 2018 ECF arrangement First Review completed in November 2018 and combined Second and Third Reviews completed in November 2019 and (ii) the reclassification of Malawi’s overall and external public debt from moderate risk of debt distress and sustainable to high risk of debt distress and unsustainable. Upfront actions have since been taken to address debt sustainability to ensure that fiscal space is created for the much needed social and development spending. Furthermore, we have started implementing corrective measures to enhance transparency in RBM’s management and reporting of official foreign exchange reserves and realigning the exchange rate with market fundamentals.

2. Today, Malawi is facing a dire macroeconomic situation, necessitating bold reforms and international support to avert a full-blown Balance of Payments (BoP) crisis. The country has experienced two major additional exogenous shocks, on the back of a weak recovery from the Covid-19 pandemic, namely: (i) tropical cyclones Ana and Gombe hit Malawi in 2022 Q1, damaging crops and infrastructure, including one of the main hydropower plants whose rehabilitation is underway until end-2022, putting additional pressure on already constrained fuel imports and (ii) war in Ukraine is putting pressure on energy and food prices, increasing risks to already high food insecurity. Furthermore, pressure from unstainable public debt continues to erode fiscal space. This calls for new policies to break away from a legacy of unsustainable policies and to help restore macroeconomic stability.

3. This Memorandum presents the economic and financial policies that the Government intends to implement under the Staff Monitoring Program with Executive Board Involvement (PMB) to build a track record for a UCT-quality arrangement within the next 12 months. The Government’s overarching objective is to restore macroeconomic stability to build the foundation for sustainable and inclusive growth as envisaged in Malawi 2063. In the near term, BoP pressure is mounting, calling for immediate government action and forging ahead with ambitious reform efforts to help improve the lives of the Malawian people. In this regard, the proposed two step approach involving emergency financing under the RCF --Food Shock Window, combined with PMB, followed by a request for an ECF once debt restructuring assurance are in place, provides a credible path forward. We recognize that this will require a credible debt restructuring treatment, deep enough to firmly restore debt sustainability, accompanied by strong fiscal and external adjustment. Notably, execution of a revised FY2022/23 budget that is based on realistic revenue estimates will be key while aligning of external policies to economic fundamentals and maintaining an appropriate monetary stance to contain inflation will be essential. We will step up our efforts to address governance weaknesses and reduce vulnerabilities to corruption, including through enhancing transparency and accountability of public financial management (PFM), strengthening autonomy and governance of the Reserve Bank of Malawi (RBM), and strengthening of its foreign exchange reserves management.

Recent Economic Developments

4. Malawi’s economic recovery remains extremely fragile. After a moderate recovery from 0.9 percent in 2020 to an estimated 2.2 percent in 2021, on the back of a good harvest. Real GDP growth is projected to decline to 0.8 percent in 2022. This reflects the effect of the two tropical storms that hit Malawi in the first quarter of 2022, delayed and early cessation of 2021/22 agricultural season rains, intermittent electricity power supply and spill-over effects of the war in Ukraine. While Malawi’s direct trade exposure to Russia and Ukraine is limited, higher fuel, fertilizer and food prices are expected to continue to affect domestic consumption and investment adding to food-security concerns.

5. Fiscal policy faced challenges in FY2021/221. The deficit in FY2021/22 is MWK 792 billion (9.7 percent of GDP), compared to a budgeted MWK 724 billion. On the back of the lingering impact of the Covid-19 pandemic, execution of the FY2021/22 budget faced the perennial problem of revenue underperformance, pressure on recurrent expenditure coupled with the under-execution of development expenditure.

6. Gross official reserves are low and pressure on the exchange rate is high. Foreign exchange market liquidity remains significantly tight, with insufficient supply to finance the existing FX demand. Supply has been further constrained by underperformance of exports and mounting servicing of external debt. As a result, readily available gross reserves turned to be at $71.7 million at end-2021. Spillovers from the war in Ukraine has put further strain on gross reserves, leaving the level of gross reserves low. The exchange rate depreciated by 25 percent at end-May 2022 following a policy decision to re-align the exchange rate with market fundamentals to help improve FX availability.

7. Inflationary pressure is mounting. Inflation has continued to deviate further away from the medium-term objective of 5.0 percent, since returning to the double-digit range in November 2021. Headline inflation has doubled from 7.6 percent at end-2020 to 25.9 percent at end-September 2022. This reflects exchange rate pass-through, lingering impact of expansionary fiscal stance in FY21/22 accompanied by accommodative monetary policy stance and increases in prices of fuel, fertilizer and imported food amid prolonged global supply disruptions.

8. The banking sector is broadly stable, well capitalized, with sufficient liquidity and profitable but exposure to the public sector has continued to increase. The banking sector meets the minimum regulatory requirements for capital adequacy and the liquidity ratios. However, since the Covid-19 pandemic, industry-wide non-performing loans generally remained marginally above the recommended limit of 5.0 percent, and stood at 5.7 percent in September 2022, up from 5.0 percent in September 2021.

9. Risks to food security increased on account of climate-induced shocks and spillovers from the war in Ukraine. Vulnerability to natural disasters has aggravated food insecurity by further depressing food production, and other exported agricultural products (tobacco) which provided sources of foreign exchange to purchase other necessary food imports. Given that Malawi is a net food importer, supply chain disruptions linked to the war in Ukraine and the resulting increase in food and fertilizer imports prices have affected Malawi severely. Consequently, the World Food Program (WFP) estimates that 3.8 million Malawians will experience acute food insecurity and in need of food assistance during upcoming lean season (October 2022-January 2023), representing more than double the number of households last year.

Outlook

10. Despite the dire macroeconomic situation, implementation of bold policy actions outlined in this MEFP is expected to lead to a favorable medium-term outturn. We are confident that a PMB will help anchor our macroeconomic policies to address macroeconomic sustainability. In this regard, we will implement bold policies and reforms, accompanied by strategies to restore debt sustainability. Furthermore, we will advance structural reforms to support sustainable and inclusive growth and address the impact of the Covid-19 pandemic, spillovers from war in Ukraine and climate-related shocks, with a view to improve lives of the Malawian people.

11. We are cognizant that in the short term, economic adjustment will be difficult, but this is necessary to address the current situation and set the foundation for sustainable and inclusive growth.

  • We expect that growth will recover from 0.8 percent projected in 2022 to 2.4 percent in 2023 as confidence in our policies and economic stability is restored. Specifically, we will pursue prudent fiscal policies and ensure that non-concessional external financing will be replaced by grants, other non-debt creating flows and adjustments under the proposed reform program. Medium term growth is projected to hover around 4 percent supported entrenchment of macroeconomic stability and implementation of structural reforms.

  • Year-on-year inflation is expected at 26 percent at end-2022 and projected to decline thereafter towards about 6.5 percent by the end of the medium term, supported by well anchored monetary and fiscal policy stance, taking into account the anticipated movements of the currency and passthrough to inflation as the RBM builds up foreign reserves and winds down currency swap operations.

  • Gross reserves are projected to recover to 3 months of imports by the end of the medium term. With external and fiscal policy adjustments, current account deficits are projected to decline over time. The reserve accumulation path assumes that the external financing gap will be filled with non-debt creating flows, either debt relief or grants.

12. Risks to the outlook are significant. While the risk of a sudden stop of existing trade credit facilities and forex swaps, if realized, could trigger an imminent BoP crisis, another COVID-19 wave and weather-related events remain relevant. In addition, the war in Ukraine could compound risks to the outlook due to supply chain disruptions and the surge in fuel, food and fertilizer prices resulting in additional financing needs and increasing risks to food insecurity.

Economic and Financial Policies for the Program Period

13. Economic and financial policies for the program period will be anchored by the Malawi 2063. Our program objectives include, (i) restoring macroeconomic stability, (ii) enhancing fiscal discipline, (iii) maintaining price stability and financial soundness, (iv) rebuilding external buffers (v) restoring debt sustainability and closing the financing gap, and (vi) addressing weaknesses in governance. The remainder of this MEFP outlines in detail the specific policies we have adopted or intend to adopt to achieve our program goals.

A. Fiscal Policy

14. Our fiscal policy stance will aim to regain fiscal discipline and restore debt sustainability. This will be supported by measures to enhance revenue collection and manage expenditures and improve transparency and monitoring of budget execution.

15. Our revised FY2022/23 budget foresees measures to reduce the fiscal deficit to 7.1 percent of GDP, in line with the macro-framework under the PMB. The revised FY22/23 budget is anchored on realistic revenue estimates and a rationalization of expenditure, while protecting essential spending, to achieve an upfront fiscal adjustment of about 33/4 ppts of GDP in FY2022/23. This implies an envisaged reduction of the domestic primary deficit to 0.6 percent of GDP in FY2022/23 compared to 4.1 percent of GDP in FY2021/22 and a reduction in the Net Domestic Financing by 2? percent of GDP to 5.5 percent of GDP in FY22/23 relative to FY21/22 (Text Table 1). In the medium-term, a primary surplus of 0 percent is needed to stabilize public debt, representing a cumulative fiscal consolidation of 4.0 percentage points (in terms of domestic primary balance) over the next four years. To achieve fiscal discipline and move towards a sustainable debt path our fiscal consolidation efforts during the remainder of FY2022/23 will focus on, (i) stepping up implementation of our domestic revenue mobilization strategy (DRMS) in a timely manner (ii) rationalizing and prioritizing expenditures, (iii) introducing and implementing sound commitment controls measures and (iv) implementing well targeted measures to support low-income households.

Text Table 1.

Malawi: Fiscal Adjustment, 2022/23–2025/26

(Percent of GDP)

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16. To align our FY2022/23 budget with the program macro-framework, we will implement the following measures.

17. The revised FY2022/23 budget (PA) has been submitted to the Cabinet on November 9, 2022. The revised budget will align spending to revenue projections so that net domestic financing is contained.

18. We will announce quarterly allotments aligned with the macro-framework and the outturns for revenue, grants and expenditure and allow Ministries Departments and Agencies (MDAs) to commit up to this amount through IFMIS. MDA payments will be limited to monthly cash releases, aligned with allotments, to demonstrate our commitment to stronger expenditure control reforms, reducing the risk of accumulating new payment arrears. The measures will also support compliance with our updated PFM Act. The introduction will be piloted in the Ministries of Finance (Treasury), Gender, Trade and Industry, Agriculture, Office of President and Cabinet, National Intelligence Service, Office of the Vice President, National Assembly, Department of Asset Declaration, with effect from November 2022 with the aim of extending the practice to all MDAs through announcement in the 2023-24 budget speech.

19. Our revenue mobilization efforts will be driven by the timely implementation of revenue measures announced in the Domestic Revenue Mobilisation Strategy (DRMS) and FY2022/23 budget statement. We launched the DRMS in December 2021 with the objective to increase revenue by 5 percent of GDP in the five years of implementation. To step up implementation, we have incorporated the DRMS in Malawi Revenue Authority’s (MRA) strategic plan and formulated a DRMS Monitoring Committee comprising MoFEA, MRA, Accountant General, Immigration Department, Malawi Police Service and Registrar General in FY2022/23 and envisage to implement the following measures:

  • PAYE Brackets: we introduced additional income tax brackets in April 2022, partly reversing the loss in revenue from previous changes in rates and brackets.

  • Advance income tax: we rolled out full implementation of the advance income tax in May 2022 which raised additional revenue amounting to MWK 6 billion.

  • Tax stamps on beverages: we are in the process of introducing the requirement for affixing or printing of electronic tax stamps on alcohol (spirits, whiskey, malt beer, opaque beer), energy drinks, flavored water, carbonated soft drinks and opaque non-alcoholic drinks. We expect this to be operational in the last quarter of FY2022/23.

  • Taxes for small businesses: we are in the process of introducing the presumptive tax for small businesses whose turnover is less than MWK12.4 million. The gazetting process of the presumptive tax regulations is currently underway. Furthermore, once these regulations are in place by end November 2022, we will roll out the block management system in full to all commercial centers for the efficient management of revenue collection from small business. So far, we have commenced implementation of block management in Lilongwe, Blantyre and Mzuzu.

  • Tax Incentives: the FY2022/23 budget announced establishment of Special Economic Zones, to help catalyze the much-needed foreign investment in Malawi. As far as tax incentives are concerned, we are reviewing the system with a view to streamline the incentives. The recommendations of the report will be incorporated in the new Taxation Act and Customs and Excise Act that are currently under review.

  • The revised budget will incorporate additional reforms to those announced in March 2022, which include VAT base broadening, and repealing tax exemptions to the Special Economic Zones.

20. To strengthen tax administration, we are on track with the go-live launching of the Integrated Tax Administration System (ITAS), also called Msonkho online December 2022 with all modules by March, 2023.

21. To improve non-tax revenues, we will implement measures including reviewing fees and charges to ensure that they, where possible, reflect full cost recovery; automating the payment systems and business processes of the MDAs; enforcing the dividend and surplus policy and ensure that the SOEs comply with the PFM Act by opening a holding account with the RBM; and ensuring that MDAs remit non-tax revenue collection to MG1 account through their departmental receipts accounts.

22. Expenditure prioritization is more critical than ever given the need to support the vulnerable and invest in infrastructure. We will endeavor to improve efficiency of public spending and to reduce non-critical spending.

  • Continue to rationalize the Affordable Input Program. We are implementing the first phase of reform to the fertilizer and seed subsidy program (Affordable Input Program (AIP)) by having a Consolidated Social Protection Program using the Unified Beneficiary Register to reduce duplication of access hence bringing in efficiency in beneficiary targeting. We have taken necessary measures to prevent cost overrun in the AIP from escalating fertilizer prices and kwacha depreciation including through increment to farmer contribution while capping the Government Subsidy and fast-tracking beneficiary reform. In subsequent phases of the AIP reform, we have adopted a plan to phase out the AIP in five years by reducing the number of beneficiaries by 20 percent every fiscal year. Furthermore, we have moved farmers at the lowest end of the income spectrum to social protection programs and those at the higher end of the spectrum to commercial agriculture programs, supported by development partners.

  • Rationalize the wage bill. The Personnel Audit was carried out in 2021 which provided a number of recommendations and the Government of Malawi is committed to manage its wage bill by freezing on new hiring to the public service, except in critical areas such as health and education sector, strengthening approval processes to payroll and pension changes within the existing Human Resource Management Information System (HRMIS).

  • To safeguard social protection and to protect the vulnerable, we will establish a floor on social spending as an indicative target (IT) under the program. This will comprise of Government contribution to health and basic and secondary education spending, as well as a number of social safety net spendings, including the social cash transfer program (SCTP) and AIP. Fiscal measures are put in place to mitigate food insecurity (Box 1).

Malawi: Fiscal Measures to Mitigate Food Insecurity, FY2022/23

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23. We plan to step up measures to enhance the oversight of state-owned enterprises (SOEs). Weak oversight and financial reporting are a challenge to adequate monitoring and management of risks to the budget and public debt from the SOEs. In this regard, we will keep close track of government guaranteed debt of SOEs. We will also undertake detailed reporting for high-risk SOEs, including Blantyre Water Board, ESCOM, ADMARC, NOCMA, EGENCO. On a quarterly basis, we will monitor the management accounts of the relevant SOEs. In compliance with the new PFM Act, we will prepare an annual consolidated report of all SOEs.

24. Implementation of the new IFMIS, institutionalizing reporting and controls are key for execution of the budget and commitment control. We will exploit the new IFMIS, which was rolled out to all MDAs from July 2021, to build upon recent and enable future Public Finance Management (PFM) reforms, including the interim Electronic Funds Transfer (EFT) for government payments, to improve our budget preparation, cash management, commitment control, banking arrangements, accountability, and payment efficiency. The success of the fiscal adjustment program relies heavily on comprehensive and timely reporting, and sound commitment controls. Our measures are as follows:

  • Arrears: We have completed the verification of arrears of the national budget entities from 1st July 2017 to 30th June, 2020. We are in discussion with the Auditor General on the stock of the unverified arrears to agree on how these will be treated and in addition, on the stock of arrears that have been submitted from the MDAs up to March, 2022. We are committed to settle the arrears within the limits of the fiscal framework and available resources and to avoid further accumulation of arrears through implementation of quarterly allotment and contract management.

  • Contract Management module of IFMIS- starting mid November 2022, we will implement quarterly commitment limits (backed by monthly payment fundings) and roll out the IFMIS contract management module starting with two MDAs, including the Ministries of Health and Transport. These will be our cornerstones for firm commitment control and management of multi-annual contracts. Implementation will include i) capturing all existing contracts/commitments in IFMIS, ii) issuance of quarterly spending limits and monthly payment funding, iii) requiring all financial transactions to be entered through IFMIS at the commitment (contract signing/purchase order issuance stage). We envisage to run the pilot phase until March 2023 and to roll out the functionalities in full to all MDAs from 1st April 2023.

  • Expand the coverage of transactions recorded in IFMIS to include items that are currently transacted outside of IFMIS including revenue, and from 1st April, 2023 the budgets and actuals of all debt issuance receipts and servicing payments, transfers to local councils, and advances to embassies. We will review the bank account structure used for public debt to ensure compliance with the new PFM Act and facilitate the recording of transactions.

  • Cash management and debt issuance: to strengthen our cash management and debt issuance, we will strictly adhere to the budget execution process stipulated in the flow chart, Text Figure 1.

Text Figure 1.
Text Figure 1.

Malawi: Cash Management Processes and Work Flows, 2022

To enhance commitment control and cash management, the Ministry of Finance reviewed the work flows to ensure unplanned spending and unplanned borrowing will be eliminated going forward.

Citation: IMF Staff Country Reports 2022, 352; 10.5089/9798400225970.002.A001

RBM: Reserve Bank of Malawi; AGD: Accountant General’s Department; ST: Secretary to Treasury; BD: Budget Director; CMC: Cash Management Committee; CMTC: Cash Management Technical Committee; CMU: Cash Management Unit; MDA: Ministries, Departments, and Agencies; DAD: Debt and Aid Department.

  • Electronic Funds Transfer (EFT): We will move to the exclusive use of EFT for government payments across all MDAs in FY2023/24 or as soon as the planned RBM upgrade of its core banking system is completed. The GOM will cease to act as a participating bank in the interbank payment system.

  • Consolidated fiscal reports: IFMIS coverage has expanded to include all national government cash inflows and outflows, including all MG1 and public debt issuance and servicing transactions from July 2021. Auto-reconciliation of government’s bank statements has started, enabling us to commence compiling IFMIS-generated monthly fiscal reports. So far, we have compiled the domestic budget execution data for April through to September 2022. Going forward, we will continue to improve the in-year comprehensive monthly fiscal reports with the ultimate goal to publish the quarterly audited IFMIS-generated comprehensive fiscal reports starting in FY2023/24. These reports will be backed by reconciled bank statements submitted within three weeks from the end of each month to the Cash Management Committee, MDAs and IMF staff.

  • PFM Act: We passed the new PFM Act in March 2022 to align the legal framework with ongoing PFM reforms. We are drafting the regulations and Treasury instructions to support the implementation of the new Act. The regulations and instructions will be finalized by March 2023 and June 2023 respectively.

B. Maintaining Price Stability and Financial Soundness

25. Monetary policy will focus on containing inflationary pressures. To anchor inflation expectations, we stand ready to tighten monetary policy as needed. In this respect, our monetary program will remain anchored on containing reserve money growth. This will call for measures to contain money growth against excess liquidity created through sizeable foreign exchange purchases from the market that we envisage to build up FX reserves. Our measure will include:

  • Tightening the monetary policy stance by raising the monetary policy rate to tame inflation with the objective of attaining positive real interest rates.

  • Draining excess liquidity through various instruments including raising required reserves, RBM’s sales of government securities, and Open Market Operations (OMO) should be considered for sterilization purposes.

26. Financial sector stability will continue to be safeguarded. The further increase in the exposure of the banking sector to the public sector and hikes in the interest rates may pose potential risks to the soundness of the financial sector. We will therefore remain vigilant to these risks and continue to strengthen financial sector oversight. To promote financial stability, we will:

  • Monitor closely the banking system’s exposure to the government through securities and swap operations.

  • Reassess loan and collateral quality needs of commercial banks.

C. Rebuilding External Buffers

27. Our external policies will support rebuilding of FX buffers, in a sustainable manner, and maintaining a market determined exchange rate. To achieve this objective,

  • We took action to realign the exchange rate with the market clearing rate through a 25 percent one-off exchange rate adjustment at end-May 2022. The realignment narrowed the exchange spread with the forex bureau rate from over 28 percent at end-April 2022 to 2 percent at end-May 2022, but the spread has since widened due to continuing speculation and forex shortages. Subsequently, we will aim to maintain the value of the kwacha market driven.

  • We will implement the agreed path towards accumulating foreign exchange reserves with the view of rebuilding the country’s reserve assets. We will slow down direct foreign exchange sales to the market in support of imports. In any event, the RBM will become a net purchaser of foreign exchange. Concurrently, we will gradually wind down the existing swap open position as guided by the foreign exchange accumulation path. We believe that pursuing this reserve accumulation strategy will help achieve a 3-months import cover by the end of the medium term. Moreover, we will also monitor reserve liabilities so that the RBM’s net international reserves (NIR) will reach an adequate level as quickly as possible.

  • We will facilitate the price formation processes in the market by arranging small pilot foreign exchange auctions. This will help determine the market-clearing exchange rate and facilitate development of the interbank FX market. (SB).

We will ensure that coordination between the government and the RBM will help achieve the external sector policy goals. In particular, the government will review its policies and their implications on foreign exchange to help contain the current account deficit.

D. Restoring Debt Sustainability and Closing the Financing Gap

28. Malawi’s overall and external public debt is assessed to be in debt distress and both external and public debt are assessed as unsustainable under current policies. This mainly reflects legacy debts that we inherited, driven by unsustainable fiscal and external policies. Restoring public debt sustainability is our top priority to support macroeconomic stability and to lay the foundation for sustainable and inclusive growth.

29. We have developed a debt restructuring strategy which will serve as our cornerstone for restoring debt sustainability. We have engaged a debt advisor to support a credible process for restructuring based on adequate creditor engagement to ensure the approach taken delivers the necessary contributions in a sustainable manner. All our creditors were approached early in the process and we are committed to achieve a debt treatment that puts our debt back on a sustainable path consistent with the macroeconomic parameters of the program

30. Our debt strategy is designed to achieve debt sustainability and to close the financing gaps. The strategy relies on the following pillars to overcome current external debt challenges, including solvency and liquidity concerns:

  • Bringing external public debt back to a moderate risk of debt distress in the medium term through a combination of policy adjustment and the necessary debt treatment. The debt strategy targets all external DSA solvency and liquidity ratios to cross their respective thresholds under the baseline in the next five years. This means (i) the baseline of the present value of debt-to-GDP ratio to reach below 30%, (ii) the present value of debt-to-exports ratio below 140%, (iii) the external debt service-to-exports ratio below 10%, and (iv) the external debt-to-revenue ratio below 14% in the medium-term

  • Mobilization of non-debt creating flows to ensure the external and fiscal financing gaps are closed over the program period, including through the debt treatment and the mobilization of external grant support from development partners

31. We are committed to pursue public finances consistent with debt sustainability and implement measures to strengthen debt management, monitoring and recording and reporting. To ensure our debt remains on a sustainable path, we will implement measures articulated below.

  • To enhance public debt management, we will update our medium-term debt strategy (MTDS) to take into account on-budget externally and domestically financed projects either contracted or expected as reflected in the macro-fiscal framework. The MTDS will also reflect the ceiling on new non-concessional external debt contracted or guaranteed [performance criterion] that will apply to Malawi as required by the Fund’s Debt Limit Policy.

  • We will adopt best practices in terms of data reporting and transparency, as well as fulfil our reporting duty to the Fund during the Staff’s program review or upon request. In particular, we reiterate our commitment to continue to integrate public debt data into IFMIS. We will also further enhance transparency around Malawi’s debt data by publishing regular reports on outstanding debt figures on our official websites. Finally, we are dedicated to building capacity around debt management and financing and to seeking technical assistance from the IMF and other partners.

  • To further support debt sustainability, we will undertake a strong fiscal adjustment while limiting the impact on economic growth and protecting vulnerable populations through our revenue mobilization efforts Finally, to rebuild our external buffers over the medium term and improve liquidity, we will pursue our export diversification strategy. Our strategy aims to reduce Malawi’s dependance on agricultural exports, thereby building resilience to climate shocks while supporting economic growth over the medium term.

E. Tackling Governance Challenges Structural Reforms

32. Strengthening RBM’s autonomy, governance arrangements, and reserve management are cornerstones of our program. In this regard, we

  • Have established RBM’s gross reserve management strategy in accordance with recommendations of the 2021 Safeguards Assessment Report (corrective action prior to presenting the misreporting case to the Board).

  • The RBM Board has established an Asset Liability Management Committee (ALCO) in accordance with recommendations of the 2021 Safeguards Assessment Report; and ALCO is fully operationalized (SB)

  • Prepare, in consultation with Fund staff, and submit the amendments to the RBM Act to the Parliament as recommended by the 2021 safeguards assessment (SB).

  • To strengthen accuracy of RBM’s program monitoring data, will (i) institute a policy to have our external auditors verify NIR data within 10 weeks after each test date, and (ii) submit monetary data through standard reporting forms to the Fund on a regular basis.

33. Misreporting of NIR: A special audit of RBM’s foreign exchange reserves for the first three reviews under the 2018 ECF was completed mid-June 2022 and confirmed the noncomplying disbursements under the previous ECF (corrective action prior to presenting the misreporting case to the Board). In addition, we have implemented several corrective measures, including (i) the RBM now submits to the Fund staff monetary and financial statistics (MFS) using the Standard Reporting Form (SRF), supported by Fund Technical Assistance; (ii) submitting terms of existing foreign exchange swaps and other reserve liabilities to Fund staff on a regular basis; and (iii) published RBM’s restated financial statements for 2018-2021 in accordance with the 2021 Safeguards Assessment recommendations and iv) realigned value of the kwacha with the market determined rates at end-May 2022. Going forward, we will continue taking a set of remedial measures aimed at rebuilding external buffers, addressing macroeconomic imbalances, and improving the quality of data submitted to the IMF as articulated in paragraph 31 and listed below:

  • Continuous and timely reporting to Fund staff of reconciled sources and uses of foreign exchange reserves of the RBM;

  • Establishing a registry to ensure consolidating records of all liabilities and contracted facilities, including pledges, encumbrances to strengthen transparency, recording and monitoring of RBM’s liabilities; and

  • Committing to fiscal discipline to ensure fiscal and external sustainability over the medium-term

34. The misappropriation of COVID-19 public funds is a stark reminder of the urgent need to address longstanding governance weaknesses. We have completed audits of three tranches of public funds released from the Ministry of Finance to different COVID-19 clusters in MDAs. The audit report for MWK 6.2 billion was completed by the National Audit Office (NAO) in March 2021, made public in April 2021 and the government is implementing the recommendations of the report which has led to recovery of some of the misappropriated funds. The implicated officials have faced disciplinary actions and criminal charges. The audit of the other two tranches amounting MWK 17.2 billion and MWK 5.0 billion, outsourced to external auditors, have been completed and submitted to the Ministry of Finance and Parliament in April 2022. Preparations are underway for specific follow-up actions needed to implement audit recommendations for the two tranches

35. Governance weaknesses at the Export Development Fund (EDF) pose a risk to the government in terms of contingent liabilities. EDF is a wholly owned subsidiary of RBM but the Government is working on modalities to merge EDF with Malawi Agricultural and Industrial Investment Corporation, PLC (MAIIC).

36. Broader governance agenda. Mindful of the obvious fact that corruption harms society, undermines national economic development, and threatens democracy, the Government adopted a strategy to combat corruption. His Excellency the President Lazarus McCarthy Chakwera, from the outset of his administration, set out the ’golden thread of conditions’ with the objective to ensure that the Malawi economy is put on a path to economic recovery and strives. Among the conditions, the rule of law, the presence of law enforcement institutions, and the absence of corruption stood out. The Government’s strategic response to corruption includes four components used to combat serious and organised crime. These include: (a) prosecuting and disrupting people engaged in corruption (Pursue); (b) preventing people from engaging in corruption (Prevent); (c) increasing protection against corruption (Protect); and (d) reducing the impact of corruption where it takes place (Prepare). The plan will be reviewed on a regular basis, as part of the Government’s commitment to open partnership with all key stakeholders in combating the scourge. To facilitate implementation of the strategy,

  • Office of the Director of Public Asset Declarations will digitise asset declarations for easy access and transparency. This to include the establishment of an interface system between ODPOD and ACB to facilitate lifestyle audits by September 2023.

  • Strengthen collaboration among the Financial Intelligence Agency (FIA), the Director of Public Prosecutions (Asset Forfeiture Unit) and ACB in tracing assets belonging to suspects for freezing and subsequent confiscation by September 2023.

  • Operationalization of the Financial Crimes Court

  • The ACB will establish and sign a Memorandum of Understanding of cooperation with a selected MDAs by June 2023 to facilitate data and information sharing for combating corruption purposes.

  • We will request for a governance diagnostic technical assistance from the IMF.

F. Enhancing Transparency and Accountability of Strategic Imports

37. The Government will ensure publication of strategic imports data on a timely manner. More specifically, MERA will publish monthly volume, value, and prices of fuel importation by importer; Ministry of Agriculture, with the support of Malawi Fertilizer Association, will publish those of fertilizers for the AIP; and Central Medical Stores Trust (CMST) will publish those of medical supplies.

Program Monitoring, Prior Actions and Structural Benchmarks Under the PMB

38. The macroeconomic policies supported by the PMB will be complemented by a strong structural program, which will make the transmission of economic policy more efficient. The Prior Actions (Table 2) signal our commitment to a strong reform agenda, while the Structural Benchmarks for November 2022-November 2023 will anchor our structural reform agenda during the course of the program (Table 3). The quantitative targets (QTs) and indicative targets (ITs) under the PMB are outlined in Table 1.

Table 1.

Malawi: Quantitative and Indicative Targets, 2022–23

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Source: IMF staff projections.

Targets are defined in the technical memorandum of understanding (TMU).

“QT” means Quantitative Target and “IT” means Indicative Target. The QT test date for the 1st Review is end-December 2022. Test dates for future reviews will be end-June 2023. End-March and end-September 2023 targets are ITs.

QT applies to upper bound only. See TMU for details.

Targets are subject to an adjustor for general budget support, as specified in the TMU.

Targets are subject to an adjustor for (i) debt service and fees and (ii) general budget support, as specified in the TMU.

Defined in nominal terms as a cumulative flow, starting from the beginning of the fiscal year.

Targets are subject to an adjuster equivalent to 10 percent of the average of the inflation adjusted domestic revenues of the previous three fiscal years, as specified in the TMU.

Priority social spending as defined in the TMU and quantified in the authorities’ budget.

Evaluated on a continuous basis.

For program purposes, a limited exception on NCB may be allowed only in the exceptional circumstance that it is used to wind down maturing swaps and for debt management operation that improves the overall debt profile.

Table 2.

Malawi: Structural Benchmarks under the Staff Monitored Program

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Table 3.

Malawi: Prior Actions Under the Staff Monitored Program

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Attachment II. Technical Memorandum of Understanding

A. Introduction

1. This memorandum sets out the understandings between the Malawian Authorities and the International Monetary Fund (IMF) regarding the definitions of the structural benchmarks (SBs), and indicative targets (ITs) for the Staff Monitored Program with Executive Board Involvement (PMB) as described in the Memorandum of Economic and Financial Policies (MEFP) for the period November 2022 through November 2023, and sets out the data reporting requirements. It also describes the methods to be used to assess the program performance and the information requirements to ensure adequate monitoring of the targets. The authorities will inform the Fund before modifying measures contained in this memorandum, or adopting new measures that would deviate from the goals of the program, and provide the Fund with the necessary information for program monitoring.

B. Coverage

2. The government is defined as the budgetary central government of Malawi, extra-budgetary units of the central government, and transfers to local government. It excludes public nonfinancial corporations, public financial corporations, operations of local councils and social security funds. The budgetary central government is defined as central government entities with budgets controlled by the Ministry of Finance and Economic Affairs (MOFEA).

3. The coverage of the financial sector includes the Reserve Bank of Malawi (RBM) and other depository corporations (ODC). Monetary aggregates under the program are based on the central bank survey, other depository corporations survey, and depository corporations survey, in accordance with the Monetary and Financial Statistics (MFS) 2016 manual.

C. Program Exchange Rates

4. For the purpose of evaluating the ITs, all foreign currency-related assets, liabilities, and flows will be evaluated at “program exchange rates” as defined below, with the exception of items affecting government fiscal balances, which will be measured at the current RBM exchange rates. The program exchange rates are those that prevailed on end-September 2022. Accordingly, the exchange rates for the purposes of the program are shown in Table 1.

Table 1.

Malawi: Cross rates for Nominal Exchange Rate and Gold Price for the 2022 PMB, 2022–23

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Sources: IMF (Internat ional Financial Statistics); and Reserve Bank of Malawi

LBM connotes Lo ndon Bullion Market.

D. Quantitative and Indicative Targets

5. Quantitative Targets are established for December 31, 2022 and June 30, 2023; and Indicative Targets are established for March 31, 2023 and September 30, 2023 with respect to:

  • Monetary base (ceiling);

  • Domestic revenue (floor)

  • Domestic primary balance of the government (floor);

  • RBM financing of the central government (ceiling);

  • New domestic arrears (ceiling);

  • Social spending (floor);

  • Change in net international reserves (NIR) of the RBM (floor);

  • Accumulation of external payments arrears (ceiling);

  • Contracting or guaranteeing of non-concessional external debt (ceiling); and

  • Contracting or guaranteeing of concessional external borrowing (ceiling).

E. Definitions

A. Targets for Monetary Aggregates

  • Ceiling on the Stock of Monetary Base

6. A ceiling applies to the upper bound of a monetary base band (set +/-3 percent) around the monetary base target.

7. Definition. The monetary base is defined as currency in circulation, ODCs’ deposit holdings at the RBM, and those deposits of money-holding sectors at the RBM that are also included in broad money as defined in the Monetary and Financial Statistics (MFS) Manual (2016).

B. Targets for Fiscal Sector

  • Floor on Domestic Revenue

8. A floor applies to the cumulative flow of domestic revenue since the beginning of the fiscal year.

9. Definition of domestic revenue: The program domestic revenue is tax and nontax revenue, or other revenue as defined in GFSM 2014 Chapter 5, recorded on a cash basis. External loans and grants are excluded. Transfers from extra-budgetary funds, proceeds from the sale of financial assets, revenue from privatizations or from the granting or renewal of licenses, and investment proceeds on government assets are not considered domestic revenue for the purposes of this program.

  • Floor on Domestic Primary Fiscal Balance

10. A floor applies to the cumulative flow of domestic primary fiscal balance since the beginning of the fiscal year.

11. Definition of the domestic primary fiscal balance. Domestic primary fiscal balance is defined (i) domestic revenue less (ii) the sum of recurrent budget expenditure (net of domestic and foreign interest payments), and domestically-financed budget development expenditure.

12. Definition of net foreign borrowing of the government: Net foreign borrowing is defined as the sum of project and program loan disbursements from official creditors (both multi- and bilateral creditors), holdings of government securities by non-residents, and commercial borrowing from non-residents, minus amortization due.

13. Definition of general budget support: General budget support includes all grants and foreign financing not directly linked to externally financed projects. Excluded from this definition are external project financing to fund particular activities, BOP support from the IMF as defined in the Memorandum of Understanding between the MOFEA and RBM, and donor inflows (in kwacha) from the foreign currency-denominated donor pool accounts for the Joint Funds (e.g. health, education, and agriculture), held in financial institutions.

14. Adjustors:

  • Adjustor on domestic primary fiscal balance – general budget support: In the event of a general budget support shortfall (or excess), the floor on domestic primary fiscal balance will be adjusted downward (or upward) by the full amount by which the foreign currency-denominated inflows from the general budget support falls short of (or exceed) the program baseline. The kwacha value of the cumulative shortfall (or excess) will be calculated at the program exchange rate. General budget support is measured as the cumulative flow from the beginning of the fiscal year.

  • Ceiling on RBM Financing of the Government

15. Definition of RBM financing of the government. RBM financing of the government is defined as net borrowing from the RBM by the government (including ways and means advances, loans, holdings of local registered stocks, government securities, and promissory notes minus deposits).

16. Adjustors:

  • For cash management purposes, the ceiling on RBM financing of the central government for December 31, 2022, March 31, 2023, June 30, 2023, and September 2023 is subject to an upward adjustment of up to 10 percent of the average inflation adjusted annual domestic revenue of the government for the past three fiscal years.

  • Ceiling on New Domestic Arrears

17. Definition of domestic arrears: Arrears are defined in PFM Act means all unpaid bills, inclusive of contractual and statutory obligations, after the end of financial year. For the purpose of this TMU, payments on wages and salaries, transfers, and compensations are deemed to be in arrears when they remain unpaid for more than 30 days beyond their due date. Domestic interest payments are in arrears when the payment is not made on the due date. Payments for goods and services are deemed to be in arrears if, following receipt of the goods or services, they have not been made beyond the fiscal year, or – if a grace period has been agreed – within the contractually agreed grace period. For the purpose of the monthly reporting, the outstanding purchase orders, payables, and cash expenses on goods and services will be reported. New pensions arrears are deemed to exist if the stock of pension increases during the end of the fiscal year. For the purpose of the monthly reporting, outstanding pension payments in the last quarter due will be reported.

  • Floor on Social Spending

18. Definition of social spending. Social spending is defined as on-government spending on social protection1 using the Unified Beneficiary Register, education expenditure2, and health expenditure3.

C. Targets for External Sector

  • Floor on Change in Net International Reserves of the RBM

19. Definition of net international reserves (NIR) of the RBM: The Net International Reserve (NIR) of the RBM is defined as reserves assets (RA) of the RBM minus foreign currency drains (FCD) of the RBM. The values of all foreign assets and FCD will be converted into U.S. dollars at each test date using the program cross exchange rates listed in Table 1. Change in NIR on each test date is calculated on a quarterly basis: that is, the change is calculated between the stock of the NIR on the test date and that of the end-date of the previous quarter.

20. Definition of reserve assets of the RBM. are defined by the International Reserves and Foreign Currency Liquidity Guidelines for a Data Template as external assets immediately available and controlled by RBM “for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency’s exchange rate, and for other related purposes (such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing).” (BPM6, paragraph 6.64). Reserve assets include the following: (i) monetary gold holdings of the RBM; (ii) holdings of SDRs; (iii) the reserve position in the IMF; (iv) foreign convertible currency holdings; (v) foreign currency denominated deposits held in foreign central banks, the Bank for International Settlements, and other banks; (vi) loans to foreign banks redeemable upon demand; (vii) foreign securities; and (viii) other unpledged convertible liquid claims on nonresidents.

21. Foreign currency drains (FCD) of the RBM are defined as the sum of the following:

  • (i) outstanding medium and short-term liabilities of the RBM to the IMF. SDR allocations are excluded from foreign currency drains of the RBM; and

  • (ii) all foreign currency liabilities of the RBM and the RBM as an agent of the government to come due within the next 12 months (4 quarters). These liabilities include (a) foreign currency debt service falling due in the next 12 months (4 quarters) and (b) swap outstanding with remaining maturity of less than one year.

22. Adjustors Applied to change in NIR Program Floor:

  • Adjustment clause on NIR-debt service and fees: The program floor on change in NIR will be adjusted upward by the full amount by which the debt restructuring reduces debt service, or downward by which debt service increases or if fees related to debt restructuring incur. The debt service adjustment includes the changes in the debt repayment schedule due to the restructuring relative to the baseline.

  • Adjustment clause on NIR-general budget support: The program floor on change in NIR will be adjusted upward by the full amount by which the foreign currency-denominated inflows from the budget support exceed the program baseline. In the event of a shortfall in budget support inflows, the downward adjustment of the change in NIR floor by the full amount by which the foreign currency-denominated inflows from the budget support falls short of the program baseline. They will be recorded in the original currency of payment and then converted to U.S. dollars using the above defined program cross exchange rates.

  • Ceiling on Accumulation of External Payment Arrears

23. Definition of external payment arrears: External payment arrears consist of debt service obligations (principal and interest) of the government or the RBM to nonresidents that have not been paid at the time they are due, or if a grace period has lapsed, as specified in contractual agreements. External debt subject to rescheduling or restructuring based on the official announcement of the debt restructuring strategy is exempted from being included as external payment arrears. This performance criterion will be monitored on a continuous basis.

  • Ceiling on Contracting or Guaranteeing Non-Concessional and Concessional External Debt

24. Definition of public and publicly guaranteed debt: The definition of debt, for the purposes of the TMU, is set out in paragraph 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107), and also includes contracted or guaranteed commitments for which value has not been received. For program purposes, the term “debt” is understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. For program purposes, a debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the National Assembly. Contracting of credit lines with no predetermined disbursement schedules or with multiple disbursements will be also considered as contracting of debt. Debt can take several forms; the primary ones being as follows:

  • i. Loans, that is, advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchange of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the loan funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

  • ii. Suppliers’ credits, that is, contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

  • iii. Lease agreements, that is, arrangements under which the lessee is allowed to use a property for a duration usually shorter than that of the life of the property in question, but without transfer of ownership, while the lessor retains the title to the property. For the purposes of this guideline, the debt is the present value (at the inception of the lease) of all the lease payments expected for the period of the agreement, except payments necessary for the operation, repair, and maintenance of the property.

    Under the definition of debt set out in this paragraph, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

25. Definition of concessional and non-concessional external debt. Short-, medium-, and long-term debt is considered concessional if it includes a grant element of at least 35 percent4 and non-concessional if otherwise. The grant element is defined as the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value of the loan. The present value of the debt at the date on which it is contracted is calculated as the discounted sum of all future debt service payments at the time of the contracting of the debt.5 The discount rate used for this purpose is 5 percent per annum. The ceiling on concessional and non-concessional debt applies to the contracting and guaranteeing of debt with nonresidents by the government, the RBM, and state-owned enterprises, unless an explicit selective exclusion is made. This performance criterion is monitored on a continuous basis. The ceiling applies to debt and commitments contracted or guaranteed for which value has not been received. The ceiling is measured cumulatively from the beginning of the fiscal year.

26. Short-term debt: Outstanding stock of debt with an original maturity of one year or less.

27. Medium- and long-term debt: Outstanding stock of debt with an original maturity of more than one year.

28. Excluded from the limit on non-concessional external debt is the use of IMF resources.

29. Swaps in debt service: In line with definition of debt (Para.5), debt service payments should include swaps based on the net change in the position.

30. Foreign exchange swaps: contracting or renewing foreign currency swaps with non resident banks beyond the program amount would be subject to the ceiling of non-concessional external debt since they pose fiscal risks.

Reporting Requirements

31. For the purpose of program monitoring, the Government of Malawi will provide the data listed in Table 2 below. For all bi-weekly submissions, data should be reported with a lag of one week. For all monthly and quarterly submissions, data should be reported within 3 weeks. For data submissions requiring audit, data is reported within 8 weeks. Annual data will be provided within six months after the end of the year.

32. The authorities will inform the IMF staff in making any changes in economic and financial policies that could affect the outcome of the financial program. Such policies include, but are not limited to customs and tax laws (including tax rates, exemptions, allowances, and thresholds), development agreements, wage policy, and financial support to public and private enterprises. The authorities will similarly inform the IMF staff of any concessional or non-concessional external debt contracted or guaranteed by the government, the RBM, or any statutory bodies, and any accumulation of new external payments arrears on the debt contracted or guaranteed by these entities.

33. The authorities will furnish an official communication to the IMF describing program quantitative performance, structural benchmarks, and indicative targets within 8 weeks of a test date.

Table 2.

Malawi: Summary of Reporting Requirements

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Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I).

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

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Includes a memorandum section which includes Net International Reserves based as defined in this TMU.

Detailed information on the amounts, currencies, terms and conditions, including debt contracted or guaranteed by the RBM or any other agency on behalf of the central government.

In accordance with the definition of arrears in the TMU Paragraph 17.

Foreign and domestic banks, and domestic nonbank financing.

Includes borrowing of 8 major parastatals: Agriculture Development and Marketing Corporation (ADMARC), Electric Supply Company of Malawi (ESCOM), Electricity Generation Company of Malawi (EGENCO), Malawi Housing Corporation, National Oil Company of Malawi (NOCMA), Northern Regional Water Board, Lilongwe Water Board, and Blantyre Water Board (BWB).

ADMARC, BWB, ESCOM, EGENCO, and NOCMA.
1

“Cashgate”, a major corruption case that led to arrests, trials and convictions of a number of civil servants.

3

“Misreporting case” resulted from the provision of inaccurate information on the performance criteria on the floor of Net International Reserves (NIR) under the 2018 ECF arrangement.

4

World Food Programme, Floods assessment Fact Sheet (10 June 2022) and Famine Early Warning System Network, Malawi Food Security Outlook Update (August 2022).

5

The RBM reintroduced a surrender requirement (a capital flow management (CFM) measure in accordance with the revised Institutional View) to exporters in August 2021 and tightened the measure in March 2022.

6

The official exchange rate has been stable (Figure 1) with the daily band applied to banks’ bids following Guidelines for Foreign Exchange Trading Activities (IMF Country Report No. 21/269, ¶46).

7

IMF Country Report 21/269, Annex VI and VII.

8

Malawi has also not incurred any arrears on bilateral official claims.

1

The Economist’s Global Food Security Index (GFSI) assesses countries’ food security outlook. It includes 28 SSA countries and measures performance across four pillars of the food security metric: availability, affordability, quality and safety, and natural resources and resilience. We focus on the first three pillars, which are defined as follows: (i) availability measures the sufficiency of the national food supply, the risk of supply disruption, national capacity to disseminate food and research efforts to expand agricultural output; (ii) affordability measures the ability of consumers to purchase food, their vulnerability to price shocks and the presence of shock-mitigation programs and policies, and (iii) quality and safety measure the variety and nutritional quality of average diets, as well as the safety of food.

2

World Food Program, March 2022. Food Security Brief.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenario highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon.

1

FY2021/22 runs for three quarters from 2021Q3-2022Q1 because the authorities shifted the fiscal year from F2022/23 henceforth to begin on the second quarter of the calendar year.

1

To include social cash transfer, climate-smart public works, and AIP.

2

Expenditure on early childhood education, primary, and secondary education services.

3

Expenditure on basic health care package provided by primary and tertiary facilities.

4

The IMF website gives an instrument (link hereafter) that allows the calculation of the grant element for a wide range of financing packages: http://www.imf.org/external/np/pdr/conc/calculator.

5

The calculation of concessionality takes into account all aspects of the loan agreement, including maturity, grace period, schedule, commitment, and management fees commissions.

Other IMF Content

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Cover IMF Staff Country Reports
Malawi: Request for Disbursement Under the Rapid Credit Facility and Request for a Staff Monitored Program with Executive Board Involvement-Press Release; Staff Report; and Statement by the Executive Director For Malawi
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 352
Publisher:
International Monetary Fund
ISBN:
9798400225970
ISSN:
1934-7685
Pages:
121
DOI:
https://doi.org/10.5089/9798400225970.002
  • <sup><xref rid="RA001textfig01" ref-type="fig">Text Figure 1.</xref></sup>
    View in gallery
    Text Figure 1.

    Malawi: Pre- and Post-Debt Treatment, 2022–32

    (Percent)

  • <sup><xref rid="RA001fig01" ref-type="fig">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    Malawi: Real Sector Developments, 2010–22

  • <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Fiscal Sector Developments, 2005–22

  • <sup>Figure 3.</sup>
    View in gallery
    Figure 3.

    Malawi: Monetary Sector Developments, 2012–22

  • <sup>Figure 4.</sup>
    View in gallery
    Figure 4.

    Malawi: External Sector Developments, 2010–22

  • <sup><xref rid="RA001fig05" ref-type="fig">Figure 5.</xref></sup>
    View in gallery
    Figure 5.

    Malawi: Capacity to Repay Indicators Compared to EF Arrangements for PRGT Countries

    (In Percent of the Indicated Variables)

  • <sup><xref rid="RApp01textfig01" ref-type="fig">Text Figure A.1.</xref></sup>
    View in gallery
    Text Figure A.1.

    Food Insecurity in SSA and Malawi

    (Global Food Security Index)

  • <sup><xref rid="RApp05textfig01" ref-type="fig">Text Figure 1.</xref></sup>
    View in gallery
    Text Figure 1.

    Malawi: Cash Management Processes and Work Flows, 2022

    To enhance commitment control and cash management, the Ministry of Finance reviewed the work flows to ensure unplanned spending and unplanned borrowing will be eliminated going forward.

Text Figure 1.

Malawi: Pre- and Post-Debt Treatment, 2022–32

(Percent)
Figure 1.

Malawi: Real Sector Developments, 2010–22
Figure 2.

Fiscal Sector Developments, 2005–22
Figure 3.

Malawi: Monetary Sector Developments, 2012–22
Figure 4.

Malawi: External Sector Developments, 2010–22
Figure 5.

Malawi: Capacity to Repay Indicators Compared to EF Arrangements for PRGT Countries

(In Percent of the Indicated Variables)
Text Figure A.1.

Food Insecurity in SSA and Malawi

(Global Food Security Index)
Text Figure 1.

Malawi: Cash Management Processes and Work Flows, 2022

To enhance commitment control and cash management, the Ministry of Finance reviewed the work flows to ensure unplanned spending and unplanned borrowing will be eliminated going forward.