IMF Executive Board Discussed the Second Review under Malawi’s Staff Monitored Program with Executive Board Involvement and Approved a 48-month Arrangement under the Extended Credit Facility
November 15, 2023
- The Executive Board of the International Monetary Fund (IMF) discussed the Second (and last) Review of the Staff-Monitored Program with Executive Board Involvement (PMB) and approved a 48-month arrangement under the Extended Credit Facility (ECF) for Malawi in an amount equivalent to SDR131.86 million (about US$175 million), with an immediate disbursement of SDR26.37 million (about US$35 million).
- Malawi continues to face a challenging macroeconomic environment. Years of unsustainable domestic and external borrowing and the adverse impact of multiple external shocks have resulted in the widening of macroeconomic imbalances, including protracted balance of payment needs.
- The ECF-supported program will support the authorities’ macroeconomic adjustment and reform agenda aimed at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, and addressing weaknesses in governance.
Malawi has struggled to sustain growth for decades despite large inflows of official development assistance. The past three years have been particularly difficult with stagnating growth and widening macroeconomic imbalances due to unsustainable debt and the effects of multiple shocks, including an outbreak of cholera and cyclone Freddy this year alone.
Malawi’s external debt is unsustainable and debt service needs are eroding limited fiscal space. Despite sizeable external emergency financing, the large fiscal budget deficit necessitated domestic financing. This has been addressed in large part through monetary financing, putting pressure on the exchange rate and increasing the rate of inflation.
The ECF arrangement aims to support the authorities’ commitment to restore macroeconomic stability, build a foundation for inclusive and sustainable growth, including to strengthen resilience to climate-related shocks, and address weaknesses in governance and institutions. The arrangement is also expected to catalyze grant financing and capital inflows including foreign direct investment and trade credit.
Following the Executive Board discussion on Malawi, Ms. Gita Gopinath, First Deputy Managing Director, and Acting Chair, issued the following statement:
“The Malawian authorities have shown unwavering commitment to the Staff-Monitored Program with Executive Board Involvement (PMB) and together with tangible progress on securing debt treatment, have established a track record for an Extended Credit Financing (ECF) arrangement with the IMF. The ECF arrangement will support the ongoing macroeconomic adjustment and reforms, catalyze grant financing and foreign direct investment, and provide a framework for structural reforms”.
“Successful external debt restructuring is vital as there is no reasonable mix of adjustment and financing alone that can deliver macroeconomic stability. The Malawian authorities are seeking comparable treatment from all official bilateral creditors and continue to pursue good faith negotiations with commercial creditors. However, time is of the essence for debt relief, as further delays would result in greater financing gaps, which could then only be closed at an undesirably high cost to the population”.
“Fiscal discipline, supported by a robust public financial management 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 is critical to prevent a further erosion of purchasing power. Rebuilding international reserve buffers and allowing for greater flexibility in the exchange rate are critically important to bring back trade credit and to reduce Malawi’s vulnerability to external shocks. Addressing weakness in governance and institutions will be important”.
“Shifting Malawi’s growth model from a consumption-driven to a production-driven one and from a government-led to a private-sector-led one is a core principle of Malawi 2063 and is vital to make Malawi’s growth inclusive, sustainable, and resilient to climate-related shocks”.
“The PMB was sufficiently robust to meet its objectives”.
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Malawi: Selected Economic Indicators, 2022-28 |
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|
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
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|
Prel. |
PMB 1 st Review |
Proj. |
PMB 1 st Review |
Proj. |
Proj. |
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|
National accounts and prices(percent change, unless otherwise indicated) |
|||||||||
|
GDP at constant market prices |
0.8 |
1.7 |
1.6 |
3.3 |
3.3 |
3.8 |
4.3 |
4.5 |
4.6 |
|
Nominal GDP (billions of Kwacha) |
11,799 |
14,768 |
15,396 |
17,728 |
19,900 |
23,454 |
26,326 |
29,279 |
32,390 |
|
GDP deflator |
17.3 |
23.1 |
28.4 |
16.3 |
25.1 |
13.5 |
7.6 |
6.4 |
5.8 |
|
Consumer prices (end of period) |
25.4 |
24.4 |
40.0 |
15.2 |
18.3 |
9.8 |
7.6 |
6.5 |
6.5 |
|
Consumer prices (annual average) |
20.8 |
24.8 |
30.3 |
18.3 |
27.9 |
14.7 |
8.1 |
6.8 |
6.5 |
|
Investment and savings (percent of GDP) |
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|
National savings |
10.0 |
4.7 |
6.2 |
2.5 |
2.1 |
2.3 |
0.4 |
2.0 |
2.6 |
|
Government |
-5.6 |
-6.2 |
-4.6 |
-6.4 |
-5.6 |
-4.2 |
-3.9 |
-1.9 |
-1.2 |
|
Private |
15.5 |
11.0 |
10.9 |
9.0 |
7.7 |
6.5 |
4.4 |
4.0 |
3.8 |
|
Gross investment |
13.1 |
12.7 |
13.9 |
11.5 |
10.6 |
12.2 |
9.4 |
10.2 |
10.0 |
|
Government |
10.2 |
9.9 |
11.2 |
8.7 |
7.9 |
9.3 |
6.3 |
6.4 |
4.8 |
|
Private |
3.0 |
2.8 |
2.7 |
2.8 |
2.6 |
2.9 |
3.1 |
3.8 |
5.3 |
|
Saving-investment balance |
-3.2 |
-7.9 |
-7.6 |
-9.0 |
-8.5 |
-9.9 |
-9.0 |
-8.2 |
-7.4 |
|
Central government (percent of GDP on a fiscal year basis) 1, 2 |
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|
Revenue |
14.3 |
17.4 |
17.2 |
17.7 |
17.2 |
18.4 |
18.8 |
17.6 |
18.8 |
|
Tax and nontax revenue |
12.5 |
13.5 |
13.3 |
14.9 |
14.0 |
15.8 |
16.1 |
15.7 |
16.6 |
|
Grants |
1.8 |
3.9 |
3.9 |
2.7 |
3.2 |
2.6 |
2.7 |
1.8 |
2.2 |
|
Expenditure and net lending |
22.6 |
29.3 |
28.9 |
27.5 |
27.9 |
26.5 |
25.9 |
23.3 |
22.9 |
|
Overall balance (excluding grants) |
-10.8 |
-15.8 |
-15.6 |
-13.2 |
-13.9 |
-10.7 |
-9.8 |
-7.6 |
-6.3 |
|
Overall balance (including grants) |
-9.0 |
-11.8 |
-11.7 |
-10.5 |
-10.7 |
-8.1 |
-7.1 |
-5.7 |
-4.1 |
|
Foreign financing |
2.6 |
3.3 |
3.3 |
0.6 |
0.4 |
-0.3 |
0.3 |
-0.4 |
-0.6 |
|
Total domestic financing |
6.9 |
8.5 |
8.4 |
8.4 |
8.0 |
5.0 |
3.5 |
3.8 |
2.7 |
|
Financing gap/residual gap |
0.0 |
0.0 |
0.0 |
1.5 |
2.4 |
3.3 |
3.4 |
2.4 |
1.9 |
|
Primary balance |
-5.0 |
-6.8 |
-6.8 |
-4.9 |
-5.4 |
-1.1 |
0.4 |
1.7 |
3.0 |
|
Domestic primary balance 3 |
-4.4 |
-3.8 |
-3.8 |
-2.8 |
-3.0 |
1.0 |
2.4 |
2.9 |
3.7 |
|
Money and credit(change in percent of broad money at the end of the period, unless otherwise indicated) |
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|
Broad money |
38.8 |
25.2 |
30.5 |
20.0 |
29.3 |
17.9 |
12.2 |
11.2 |
10.6 |
|
Net foreign assets |
-13.8 |
-5.3 |
-13.3 |
8.4 |
12.6 |
10.4 |
6.2 |
2.5 |
3.2 |
|
Net domestic assets |
52.6 |
30.5 |
43.8 |
11.7 |
16.6 |
7.5 |
6.0 |
8.7 |
7.4 |
|
o/w Net claims on the government |
39.0 |
26.1 |
43.3 |
18.8 |
8.8 |
12.8 |
10.9 |
10.9 |
9.8 |
|
Credit to the private sector (percent change) |
24.1 |
16.0 |
19.6 |
8.2 |
11.2 |
5.8 |
8.9 |
9.1 |
10.7 |
|
External sector (US$ millions, unless otherwise indicated) |
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|
Exports (goods and services) |
1,128 |
1,322 |
1,428 |
1,454 |
1,552 |
1,653 |
1,730 |
1,872 |
1,984 |
|
Imports (goods and services) |
1,835 |
2,487 |
2,680 |
2,608 |
2,695 |
2,969 |
3,011 |
3,136 |
3,215 |
|
Gross official reserves |
120 |
499 |
394 |
747 |
714 |
967 |
1,081 |
1,133 |
1,135 |
|
(months of imports) |
0.5 |
2.3 |
1.8 |
3.3 |
2.9 |
3.9 |
4.1 |
4.2 |
4.1 |
|
(percent of reserve money) |
21.6 |
106.1 |
69.9 |
153.3 |
119.4 |
153.4 |
161.7 |
159.6 |
151.0 |
|
Net international reserves 4 |
-1,247 |
-673 |
-1,052 |
-594 |
-667 |
-468 |
-366 |
-306 |
-232 |
|
Current account (percent of GDP) |
-3.2 |
-7.9 |
-7.6 |
-9.0 |
-8.5 |
-9.9 |
-9.0 |
-8.2 |
-7.4 |
|
Real effective exchange rate (percent change) |
2.9 |
... |
... |
... |
... |
... |
... |
... |
... |
|
Overall balance (percent of GDP) |
-0.1 |
-2.6 |
-2.2 |
0.1 |
0.1 |
1.0 |
-0.4 |
0.0 |
0.4 |
|
Financing gap (percent of GDP) |
0.0 |
5.8 |
4.6 |
2.6 |
3.1 |
1.8 |
2.0 |
0.9 |
0.2 |
|
Terms of trade (percent change) |
-14.2 |
11.4 |
15.8 |
-1.8 |
0.2 |
2.9 |
3.1 |
3.2 |
-0.8 |
|
Debt stock and service (percent of GDP, unless otherwise indicated) |
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|
External debt (public sector) |
34.8 |
37.1 |
39.3 |
35.3 |
35.2 |
33.8 |
31.2 |
28.8 |
26.3 |
|
NPV of public external debt (percent of exports) |
269.9 |
187.1 |
178.8 |
162.3 |
154.8 |
142.8 |
131.3 |
118.8 |
108.9 |
|
Domestic public debt 5 |
40.8 |
43.2 |
42.0 |
44.9 |
39.8 |
41.0 |
42.3 |
43.0 |
41.7 |
|
Total public debt 5 |
75.7 |
80.2 |
81.3 |
80.2 |
75.0 |
74.8 |
73.5 |
71.8 |
68.0 |
|
External debt service (percent of exports) |
11.9 |
59.8 |
58.1 |
25.2 |
26.1 |
18.8 |
18.0 |
12.8 |
10.8 |
|
Sources: Malawian authorities; and IMF staff estimates and projections |
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1The 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. |
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2Please note that government fiscal statistics are reported following the Government Finance Statistics Manual (2014) starting 2020 projections and going forward. |
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3Domestic primary balance is calculated by subtracting current expenditures (except interest payment) and domestically-financed development expenditures from tax and nontax revenues. |
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42022 NIR is calculated as defined 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. |
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5Domestic debt is at face value and future borrowings is at cost value. |
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