Malawi’s economy has been severely affected by the pandemic and debt burden. While the daily COVID-19 positive cases remain relatively low, recovery is gradual. Real GDP growth is projected to pick up to 2.2 percent in 2021 from 0.9 percent in 2020, helped by a good harvest; Substantial development and social spending needs, a high debt burden from the past, and limited budget support financing are continuing to contribute to sustained fiscal and current account deficits; Urgent needs are to address the humanitarian situation, strengthen public sector governance, restore debt sustainability, and rebuild fiscal and external buffers. Support from development partners will be critical.
An International Monetary Fund (IMF) team led by Mika Saito held virtual missions during July 20-27, 2021 and October 28-November 4, 2021 to conduct discussions for the 2021 Article IV Consultation with Malawi.
At the conclusion of the mission, Ms. Saito issued the following statement:
“Malawi’s economy is showing signs of recovery as daily COVID-19 positive cases remain relatively low, but the recovery is gradual. Real GDP growth in 2021 is projected to increase to 2.2 percent, from 0.9 percent in 2020, helped by a good harvest. Inflation is expected to reach 9 percent in 2021, from 8.6 percent in 2020, driven by increases in prices of fuel, fertilizer and food.
“Discussions with the authorities centered on policies to address Malawi’s macroeconomic vulnerabilities and invest in physical and human capital to achieve the authorities’ vision of upper-middle income status by 2063. Substantial development and social spending needs, a high debt burden from the past, and limited availability of budget support is leading to sustained fiscal and current account deficits. Urgent needs are to address the humanitarian situation, restore debt sustainability, and rebuild fiscal and external buffers. Support from development partners will be critical.
“In the mission’s view, it would be beneficial for Malawi to anchor its fiscal program in a way that stabilizes its debt quickly. Given already pressing debt service needs, delaying adjustments will exacerbate pressures down the road. Redoubling efforts on domestic revenue mobilization, reprioritizing expenditure through curtailing growth in wages while safeguarding capital spending, reforming the Affordable Input Program (AIP) and goods and services, and reducing non-critical spending would help in this regard. Realism in budget forecasts and public financial management reforms would help containing fiscal deficits and debt.”
“Limited movements in the exchange rate since 2016 led to a substantial appreciation of the Kwacha in real effective terms, higher current account deficits, and a loss of foreign exchange reserves. Allowing for greater exchange rate flexibility and strengthening the monetary and fiscal policy stance would help address chronic foreign exchange shortages and potential inflationary pressures. Developing a well-functioning and transparent foreign exchange interbank market and formulating a foreign exchange reserve management strategy are also critical.
“Strengthening public sector governance and institutions would help safeguard scarce resources and strengthen policy effectiveness. The mission urged publication of comprehensive fiscal reports to further enhance budget transparency and accountability. It is also important for the authorities to complete remaining COVID-19 spending audit reports and take follow-up actions on the findings of the National Audit Office’s completed audit reports which pointed to the misappropriation of COVID-related public funds.
“The mission welcomed the increased availability of statistics, especially in the monetary and national accounts. Further efforts across areas, particularly consolidated fiscal statistics and balance of payments data, would be helpful and the IMF stands ready to support these efforts through technical assistance.”
The IMF team met with Minister of Finance, Hon. Felix Mlusu, Governor of the Reserve Bank of Malawi, Dr. Wilson Banda, other senior government officials, representatives from the banking sector, development partners, and civil society organizations. The team thanks the authorities for their collaboration and fruitful discussions.
Distributed by APO Group on behalf of International Monetary Fund (IMF).
