Front Matter
Author:
International Monetary Fund. African Dept.
Search for other papers by International Monetary Fund. African Dept. in
Current site
Google Scholar Close
Publication Date:
31 Jul 2023
eISBN:
9798400250941
Language:
English
Keywords:
Th e authorities; IMF's transparency policy; IMF staff modification; Policy discussion; debt restructuring process; Debt restructuring; Debt strategy
Download PDF (1.4 MB)

IMF Country Report No. 23/299

Abstract

IMF Country Report No. 23/299

Copyright Page

IMF Country Report No. 23/299

MALAWI

FIRST REVIEW UNDER THE STAFF-MONITORED PROGRAM WITH EXECUTIVE BOARD INVOLVEMENT— PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR MALAWI

July 2023

In the context of the First Review Under the Staff-Monitored Program with Executive Board Involvement, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 27, 2023, following discussions that ended on May 22, 2023, with the officials of Malawi on economic developments and policies underpinning its Staff-Monitored Program. The staff report was approved by IMF Management on July 13, 2023.

  • A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association (IDA).

  • A Statement by the Executive Director for Malawi.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2023 International Monetary Fund

Press Release

PR23/282

IMF Executive Board Discussed First Review under Malawi’s Staff-Monitored Program with Executive Board Involvement

FOR IMMEDIATE RELEASE

  • The Executive Board of the International Monetary Fund (IMF) discussed the first review of the 12-month Staff-Monitored Program with Executive Board involvement (PMB) for Malawi. The review was approved by the Management of the IMF on July 13, 2023.

  • In light of a series of shocks, program performance was mixed. Th e authorities are taking corrective actions to establish a track record of policy implementation, possibly paving the way to an Extended Credit Facility (ECF) arrangement.

  • The Executive Board agreed with staff that Malawi is on track to achieve the objectives of the PMB.

Washington, DC-July 28, 2023: The Executive Board of the International Monetary Fund (IMF) discussed the first review of the Staff-Monitored Program with Executive Board Involvement (PMB) for Malawi.

Malawi has been affected by a series of shocks—including an outbreak of cholera and Cyclone Freddy, which caused significant loss of life and damage to infrastructure—since the approval of the PMB on November 11, 2022. In this context, growth has been weaker and inflation higher than expected. The fiscal deficit in FY 2022/23 (April/March) was larger than expected at the time of the PMB. Meanwhile, external strains—including shortage of foreign exchange, difficulties securing trade credit, and a widening spread between official and bureau exchange rates—have heightened. Despite a sharp reduction in the current account deficit, accumulation of foreign exchange reserves has been slower than expected, implying an increase in informal trade.

Cyclone Freddy has weighed on the outlook for 2023 and led to a lower growth forecast and a higher inflation forecast. Key downside risks include slippages in program implementation, delays in the ongoing external debt restructuring process, and further external shocks.

Performance under the PMB has been mixed, but the authorities are addressing challenges and continue to commit to the PMB’s agreed macroeconomic adjustment path and policy reforms. The authorities are taking corrective actions necessary to demonstrate their capacity to implement the agreed macroeconomic adjustment and reforms, as well as to build the policy track record needed to support their prospective request for an Extended Credit Facility (ECF) arrangement.

At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair made the following statement:

Steadfast implementation of and unwavering commitment to this Staff-Monitored Program with Executive Board Involvement (PMB) will be critical to restore macroeconomic stability and establish a track record to support a prospective request for an Extended Credit Facility (ECF) arrangement.

Successful debt restructuring is vital to deliver macroeconomic stability. The authorities’ external debt restructuring strategy aims to bring external debt service down substantially through a significant treatment of commercial debt and official bilateral debt. A concerted effort among the authorities, their creditors, and their international development partners will be crucial to ensure successful implementation of the external debt restructuring strategy.

Fiscal discipline, supported by a robust Public Financial Management (PFM) system and timely production of comprehensive fiscal reports, remains critical. Concerted effort by the authorities and other domestic stakeholders to prepare for fiscal financing challenges is important. Price stability supported by fiscal consolidation is critical to prevent a further erosion of purchasing power for those living in poverty and food insecurity. Rebuilding buffers is critically important to reduce Malawi’s vulnerability to external shocks.

Addressing weakness in governance and institutions remain important priorities, as demonstrated by the recent fertilizer deal, which is concerning from a governance perspective. The authorities’ governance and procurement practices should be strengthened to avoid such incidents in the future.

The Management-approved Staff Monitored Program (SMP) is sufficiently robust and remains on track to meet its objectives.

Malawi: Selected Economic Indicators, 2021–28

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

The 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. starting from FY2022/23.

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

2021 NIR is calculated as gross official reserves minus a sum of Use of Fund Credit, repayments projection of medium-term debt by remaining maturity, and short-term swap outstanding. 2022 NIR is calculated as define in the TMU at the time of the PMB application. Thereafter, the net international reserves reported not only subtract foreign currency drains (FCD) as defined in the TMU of the First Review of the PMB, but also all outstanding foreign currency debt service to external creditors to which the RBM (including as an agent of the government) is in arrears and or servicing via other means, in line with debt restructuring strategy.

Domestic debt is at face value and future borrowings is at cost value.

Title page

MALAWI

FIRST REVIEW UNDER THE STAFF-MONITORED PROGRAM WITH EXECUTIVE BOARD INVOLVEMENT

July 13, 2023

EXECUTIVE SUMMARY

Context and recent developments. Malawi has been affected by a series of shocks— including an outbreak of cholera and Cyclone Freddy, which caused significant loss of life and damage to infrastructure—since the approval of the Staff-Monitored Program with Executive Board Involvement (PMB) on November 11, 2022, and the disbursement of $88.3 million in emergency financing under the Food Shock Window of the Rapid Credit Facility on November 21, 2022. In this context, growth has been weaker and inflation higher than expected. The fiscal deficit in FY2022/23 (April/March) was larger than expected at the time of the PMB. Meanwhile, external strains—including shortage of foreign exchange, difficulties securing trade credit, and a widening spread between official and bureau exchange rates—have heightened. Despite a sharp reduction in the current account deficit, accumulation of foreign exchange reserves has been slower than expected, implying an increase in informal trade.

Outlook and risks. Cyclone Freddy has weighed on the outlook for 2023, and led to a lower growth forecast and a higher inflation forecast. The approved FY23/24 budget is in line with the program parameters, and the medium-term fiscal consolidation path is largely unchanged. Key downside risks include slippages in program implementation, delays in the ongoing external debt restructuring process, and further external shocks.

Program performance. Performance on Quantitative Targets (QTs), Indicative Targets (ITs), and Structural Benchmarks (SBs) was mixed, with four out of six end-December and continuous QTs and one out of three end-December ITs not met. Four out of seven Structural Benchmarks were not met. The authorities have committed to strong corrective actions.

Modification of QTs and indicative targets ITs. The authorities requested to IMF staff modifications of QTs and ITs for end-June and end-September, in line with updated program projections, which were approved by Management. In consultation with IMF staff, the authorities also have proposed to revise the definition of the net international reserves (NIR) in the Technical Memorandum of Understanding (TMU) to avoid unnecessary volatility relating to uncertainties surrounding the timing of the debt restructuring process.

Policy commitments. The authorities are taking corrective actions necessary to overcome mixed performance and implementation challenges with the PMB to date, allowing them to demonstrate their commitment and capacity to implement the agreed macroeconomic adjustment and reforms to build the policy track record needed to support their request for an Extended Credit Facility (ECF) arrangement.

Staff’s views. Staff assesses that the program remains on track to achieve its objectives.

Approved By

Costas Christou (AFR) and Bjorn Rother (SPR)

The discussions in Lilongwe took place May 16–22, 2023; the staff team consisted of Mika Saito (head), Farayi Gwenhamo (resident representative), Erin Nephew, Jacinta Bernadette Shirakawa, Jung Eun Yoon (all AFR), and Liam Crowley Reidy (SPR). The team met with H.E. President Chakwera, the Hon. Sosten Gwengwe (Minister of Finance), Dr. Wilson Banda (Governor of the Reserve Bank of Malawi, RBM), other senior government and RBM officials, representatives from the private sector and the international community. Camille Bravo and Rohan Singh Ahluwalia assisted with the preparation of this report.

Contents

  • CONTEXT AND RECENT DEVELOPMENTS

  • OUTLOOK AND RISKS

  • PROGRAM PERFORMANCE

  • POLICY DISCUSSIONS

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

  • B. Achieving Price Stability and Maintaining Financial Soundness

  • C. Rebuilding External Buffers

  • D. Restoring Debt Sustainability

  • E. Tackling Governance Challenges

  • PROGRAM MODALITIES

  • STAFF APPRAISAL

  • FIGURES

  • 1. Real Sector Developments, 2010–23

  • 2. Fiscal Sector Developments, 2005–24

  • 3. Monetary and Financial Sector Developments, 2012–23

  • 4. External Sector Developments, 2010–23

  • TABLES

  • 1. Selected Economic Indicators, 2021–28

  • 2a. Central Government Operations, FY 2020/21–27/28 (Billions of Kwacha)

  • 2b. Central Government Operations, FY 2020/21–27/28 (Percent of GDP)

  • 3a. Central Bank Survey, 2021–28

  • 3b. Depository Corporations Survey, 2021–28

  • 4a. Balance of Payments, 2021–28 (Millions of U.S. Dollars)

  • 4b. Balance of Payments, 2021–28 (Percent of GDP)

  • 5. Selected Banking Soundness Indicators, 2019–23

  • 6. External Financing Requirement and Source, 2022–28

  • ANNEX

  • I. Risk Assessment Matrix

  • APPENDICES

  • I. Letter of Intent

    • Attachment I. Memorandum of Economic and Financial Policies

    • Attachment II. Technical Memorandum of Understanding

  • II. Supplementary Letter of Intent

    • Attachment I. Revised Table 1. Malawi: Quantitative and Indicative Targets, 2022–23

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Malawi: First Review Under the 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 2023: Issue 299
Publisher:
International Monetary Fund
ISBN:
9798400250941
ISSN:
1934-7685
Pages:
94
DOI:
https://doi.org/10.5089/9798400250941.002