Press Release No. 23/318

IMF Staff and the Malawian Authorities Reach Staff-Level Agreement on the Second Review of the Staff Monitored Program with Executive Board Involvement and an Extended Credit Facility Arrangement

September 21, 2023

• IMF staff and Malawian authorities have reached a staff-level agreement on the Second (and last) Review of the Staff Monitored Program with Executive Board Involvement (PMB), and macroeconomic and financial policies and reforms to be supported by a new 48-month financing arrangement under the Extended Credit Facility (ECF) of about $174.00 million. The agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances.
• Building on the track record under the PMB, the proposed ECF-arrangement will support the authorities’ ongoing efforts to restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth envisaged under Malawi 2063. The arrangement is expected to catalyze grant financing to support such efforts.
• Securing debt restructuring with bilateral official and external commercial creditors will be key to restore medium-term debt sustainability.

Washington D.C. – September 21, 2023: An International Monetary Fund (IMF) team led by Ms. Mika Saito held discussions with the Malawian authorities during August 29 – September 20 via hybrid and in-person meetings in Lilongwe. The discussions covered the Second Review of Malawi’s Staff Monitored Program with Executive Board Involvement (PMB) , and a program of economic policies and reforms to be supported by a new arrangement under the Extended Credit Facility (ECF).

At the end of the mission, Ms. Saito issued the following statement:

“The IMF team has reached a staff-level agreement on the Second (and last) Review of Malawi’s Staff Monitored Program with Executive Board Involvement (PMB) , and macroeconomic and financial policies and reforms to be supported by an ECF arrangement. Access under the arrangement could be up to SDR 131.86 million (about $174.00 million, representing 95 percent of Malawi’s IMF quota) over a period of four years. The arrangement is expected to catalyze grant financing. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Malawi’s partners and creditors.

“Malawi is recovering from a series of shocks, including an outbreak of cholera and cyclone Freddy. Real GDP growth is projected to increase to 1.6 percent in 2023, with shortages of foreign exchange still weighing on economic activity. Inflation is expected to average 30.3 percent in 2023 and to decline to around 7 percent in the medium-term.

“The authorities stepped up efforts to meet fiscal targets under the PMB, adjusting expenditure to offset a shortfall in revenue, and containing government borrowing to slow money growth. The Reserve Bank of Malawi (RBM) tightened the monetary policy to contain inflationary pressures and resumed foreign exchange auctions. Rebuilding foreign reserves of the RBM has been slow as access to trade credit remains limited since the beginning of the year.

“The authorities continue to pursue good faith negotiations with commercial and official bilateral creditors and are in arrears on commercial debt while these discussions continue

“The prospective ECF-supported program will aim at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, addressing weaknesses in governance and institutions, and strengthening resilience to climate-related shocks. Fiscal policy will aim at achieving a debt-stabilizing primary balance in the medium-term through a package of expenditure adjustment and revenue mobilization measures. The authorities are committed to applying fiscal discipline, containing domestic borrowing, and improving public financial management.

“Monetary policy will remain anchored on containing money growth. It will aim to tame inflation by ensuring positive real interest rates. The banking system remains stable though exposure to government securities needs to be closely monitored.

“External sector policies will focus on rebuilding official international reserves and facilitating a market-determined exchange rate.

“The authorities are committed to ramp up their efforts to improve data quality and timely submission of the data to the IMF staff.

“Consideration by the IMF Executive Board is scheduled for mid-November 2023.

The staff team paid a courtesy call on His Excellency President Lazarus McCarthy Chakwera and met with Minister of Finance and Economic Affairs, Hon. Sosten Gwengwe, Reserve Bank of Malawi Governor, Dr. Wilson T. Banda, and other senior government officials. The mission thanks the authorities for their warm hospitality and constructive discussions.”