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Statement at the Conclusion of an IMF Mission to Malawi

Press Release No.

FOR IMMEDIATE RELEASE

June 25, 2013

A team from the International Monetary Fund (IMF), led by Tsidi Tsikata, visited Lilongweand Blantyre during June 11-25, 2013, to conduct discussions for the third review ofMalawis Extended Credit Facility (ECF) arrangement.1The mission met Her ExcellencyPresident Joyce Banda, Minister of Finance Ken Lipenga, Minister of Economic Planningand Development Ralph Jooma, Minister of Industry and Trade Sosten Gwengwe, GovernorCharles Chuka (Reserve Bank of Malawi), Chief Secretary Hawa Ndilowe (Office of the

President and Cabinet), Secretary to the Treasury Randson Mwadiwa, other seniorgovernment and RBM officials, members of parliament, as well as representatives of civilsociety organizations, financial institutions, private sector enterprises, trade unions, andMalawis international development partners. The mission expresses its gratitude for theconstructive spirit in which discussions with the authorities and all stakeholders were held.

At the end of the mission, Mr. Tsikata issued the following statement:

A number of indicators suggest that macroeconomic policy reforms have begun to bearfruit: increased availability of foreign exchange, the recent appreciation of the Kwacha,declining inflation, and rising capacity utilization in the manufacturing sector.

Performance under the ECF-supported program has been broadly satisfactory. Nearly all the

quantitative targets for end-March 2013 were met. In particular, after adjusting for shortfallsin the disbursement of aid flows, the targets on net international reserves, government netdomestic borrowing, and the net domestic assets of the Reserve Bank of Malawi (RBM) weremet. There was progress in the implementation of structural benchmarks, albeit at a slowerpace than programmed.

Policy discussions focused on risks to the economic outlook and measures to mitigate theserisks. In view of Malawis past record of loose fiscal policies in election years, the mission

highlighted the need for fiscal discipline to consolidate emerging gains from the ongoingpolicy reforms. In particular, it urged the authorities to keep government spending withinavailable resources, and recommended: wage restraint; the identification of lower priorityexpenditures that can be cut or postponed in the event of funding gaps; better enforcementof announced expenditure control measures; and adherence to regulations governing the

1 The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as theFunds main tool for medium-term financial support to low-income countries by providing a higher level ofaccess to financing, more concessional terms, enhanced flexibility in program design features, and morefocused streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a graceperiod of 5 years, and a final maturity of 10 years. The Fund reviews the level of interest rates for allconcessional facilities every two years.

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procurement of goods and services using purchase orders generated through the IntegratedFinancial Management Information System.

The mission welcomed the RBMs recent purchases of foreign exchange from the domesticmarket to boost official international reserves. At the same time, it urged the RBM to bemore proactive in tightening monetary policy to rein in inflation pressures. In order to

safeguard financial stability, the mission advised the RBM to strengthen its oversight of thebanking system, especially with respect to banks that continue to have difficulty meetingprudential requirements.

The mission commended the authorities on efforts underway to reduce the cost of doingbusiness in Malawi, including the passage of a number of laws and regulatory andadministrative reforms. It encouraged the authorities to step up efforts to develop the MalawiInvestment and Trade Center into an effective One-Stop Shop for investors, and tocontinue seeking solutions to address key supply-side bottlenecks in transportation, energy,water and communications infrastructure, so as to enhance Malawis externalcompetitiveness and help foster sustained, diversified and more inclusive growth.

The mission reached understandings with the authorities on major policy issues.Discussions will continue over the coming weeks on a few outstanding matters related togovernment budget execution, financial sector reforms, and external borrowing. Once thediscussions are concluded, the mission would recommend to the IMF Executive Board thecompletion of the third review under the ECF arrangement. Completion of the review willenable Malawi to receive a disbursement of SDR 13 million (about US$20 million) from theIMF.