Press Release No. 12/441
November 15, 2012
A team from the International Monetary Fund (IMF), led by Tsidi Tsikata, visited Lilongwe during October 30-November 15, 2012 for discussions on the first review of Malawi's Extended Credit Facility (ECF) arrangement.1 The mission was received by Her Excellency President Joyce Banda, and held discussions with Minister of Finance Ken Lipenga, Governor Charles Chuka (Reserve Bank of Malawi), Secretary to the Treasury Randson Mwadiwa, and other senior government and RBM officials, representatives of Malawi's international development partners, trade unions, and the banking and business communities. The mission is grateful to the authorities for the constructive spirit in which discussions were held, and for their warm hospitality.
The ECF was approved on July 23, 2012 (see Press Release 12/273). At the conclusion of the mission, Mr. Tsikata issued the following statement:
"The mission has reached staff-level understandings with the authorities on policies for completing the first ECF review. Consideration by the IMF's Executive Board is tentatively scheduled for December. Completion of this review will enable Malawi to receive a disbursement of SDR 13.02 million (US$19.9 million) from the IMF.
"Against the back drop of a difficult external environment, performance under the program has been satisfactory. Most of the quantitative targets for end-September 2012 were met, including those on the level of net international reserves of the Reserve Bank of Malawi (RBM), and on the government's net domestic borrowing. All structural benchmarks scheduled for implementation by end-September were met, including publication of the monthly revenue collections of the Malawi Revenue Authority in local newspapers.
"Exogenous shocks have created a more challenging environment than expected when the program was formulated. Drought conditions in parts of the country have dampened the near term outlook for growth, contributed to a spike in inflation and left nearly 2 million people facing food deficits. Real GDP growth is estimated to have slowed from 4.3 percent in 2011 to 1.9 percent in 2012 mainly due to contraction in output from the agriculture and manufacturing sectors. The pace of recovery in several other sectors has been slower than expected. Although the private sector has cleared a substantial amount of external payments arrears, external credit lines have not yet been re-established as creditors have adopted a wait-and-see attitude. In this regard, the mission welcomed the resumption of implementation of the automatic price adjustment mechanism for petroleum products last week, after a month long delay.
"Continuing depreciation of the exchange rate, rising inflation, and unforeseen difficulties in the implementation of social protection programs are among the principal challenges the authorities currently face. The mission discussed the scope for tightening monetary and fiscal policies to stabilize the exchange rate and contain inflation. It welcomed the authorities' efforts to address the unforeseen challenges through continued commitment to the reform agenda and ongoing appeals for increased assistance from development partners to support the delivery of public services, especially in the social sectors."
The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the IMF's main tool for medium-term financial support to low-income countries. It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.