7/31/2019 IMF Executive Board Approves New US$ 156.2 Million Extended Credit Facility Arrangement for Malawi

1/2

IMFExecutiveBoardApprovesNewUS$156.2MillionExtendedCreditFacilityArrangementforMalawiPressReleaseNo.12/273July23,2012

TheExecutiveBoardoftheInternationalMonetaryFund(IMF)todayapprovedanewthree-yeararrangementforMalawiundertheExtendedCreditFacility(ECF)inanamountequivalenttoSDR104.1million(aboutUS$156.2million).TheBoardsdecisionwillenableanimmediatedisbursementequivalenttoSDR13.02million(aboutUS$19.5million).Thegovernmentsmedium-termeconomicprogramsupportedbytheECFarrangementisbasedonMalawissecondGrowthandDevelopmentStrategy(MGDSII).Theprogramisaimedattheachievementandmaintenanceofmacroeconomicstabilityandimplementationofpoliciesandstructuralreformstospurgrowth,diversifytheeconomyandreducepoverty.FollowingtheBoardsdiscussionofMalawi,NaoyukiShinohara,DeputyManagingDirectorandActingChair,issuedthefollowingstatement:Malawisnewadministrationmovedswiftlytodevaluethekwacha,adoptaflexibleexchangerateregimeandliberalizecurrentaccounttransactionstoaddressthecountryschronicbalanceofpaymentproblemsandimprovetheoutlookforpovertyreductionandgrowth.ThenewECFarrangementprovidessupportfortheauthoritiesmedium-termeconomicprogrambasedonMalawissecondGrowthandDevelopmentStrategy(MGDSII).Specificobjectivesoftheprogramincludemacroeconomicstabilitywithlowinflation,

increasinginternationalreservestoprovideabufferagainstexternalshocks,andreformstoimprovetheinvestmentclimateandpromotesustainedinclusivegrowth.Theauthoritieshaveadoptedaprudentfiscalstanceinthe2012/13budget.Higherdonorsupportandasizeabledomesticrevenueeffortallowthegovernmenttoincreasetotalspendingslightlywithoutrecoursetodomesticborrowing.Tightcontrolovernon-priorityspendingwillbeneededtoensurethatexpendituresarealignedwiththegovernmentspriorities,includingscaledupspendingonsocialprotectionprogramstomitigatetheimpactofadjustmentmeasuresonthepoor.Inordertoachievefiscalsustainability,theprogramincludesmeasurestoenhancedomesticrevenuemobilizationandpublicfinancialmanagementreformstostrengthenthebudgetprocessandavoidtheaccumulationofarrears.Monetarypolicywillbegearedtoachievingpricestability,whileprovidingroom

forsufficientcredittotheprivatesectorandsupportingabuild-upofinternationalreserves.ReformswillincludemeasurestoincreasetheoperationalindependenceoftheRBM.TheRBMwillcontinuetostrengthenitsmonitoringandsurveillanceofthefinancialsystem.Theprogramsupportstheauthoritiesmultifacetedapproachtopromotinggrowth,includingmeasurestodeepenthefinancialsystemandtoenhanceMalawisinternationalcompetitivenessbyaddressingkeysupply-sidebottlenecksinenergyandtransportinfrastructure,Mr.Shinoharaadded.

AnnexRecenteconomicdevelopmentsMalawifacedseriousmacroeconomicchallengesinthelasttwoyears,includingasevereshortageofforeignexchange,whichtranslatedintoshortagesofcritica

limportssuchasfuel,inputsforproduction,andmedicines.Asaresult,realGDPgrowthslowedto4.3percentin2011,fromanaverageannualrateof8.3percentduring200710.Inflationhasbeenonanupswingsinceearly2011,withtheyear-on-yearheadlineratereaching17.3percentinMay2012.Thecurrentaccountbalance(includingtransfers)hasfluctuatedwidely,drivenmainlybyaidflowsandtermsoftrade.ThenewadministrationformedinApril2012movedswiftlytobeginaddressingthecountryschronicbalanceofpaymentsproblems.Specificmeasuresimplementedinclude:devaluationoftheexchangerate;adoptionofafloatingexchangerateregime;liberalizationofthemarket.Theadjustmentmeasuresarebeginningtosho

7/31/2019 IMF Executive Board Approves New US$ 156.2 Million Extended Credit Facility Arrangement for Malawi

2/2

wpositiveresults.Salesoftobaccothroughofficialchannelshaveincreasedandtheprivatesectorsaccesstoforeignexchange,includingforfuelimports,haseasedconsiderablyProgramSummaryThespecificobjectivesofthegovernmentsprograminclude: Achievementandmaintenanceofastablemacroeconomicenvironmentwithlowinfltion. Increasinguseableinternationalreservesfromtheequivalentofaboutonemontofimportsatend-2012to3monthsofimportsbyend-2015. BoostingrealGDPgrowthfrom4.3percentin2012toatleast6percentperyefrom2015. Scalingupsocialprotectionprogramstomitigatetheadverseimpactofadjustmntmeasuresonthemostvulnerablesegmentsofthepopulation.Keyelementsofthestrategyforachievingtheseobjectivesinclude: Fiscalpolicygearedtostrengtheningdomesticrevenuemobilization,keepinggoernmentspendingwithinavailableresources(domesticrevenues,grants,andhighlyconcessionalexternalloans)andinlinewithgovernmentpriorities,andreducingdomesticdebt EnhancedoperationalindependenceoftheReserveBankofMalawitoenableitpusuetheobjectiveofachievinglowinflationandbuildingupinternationalreservesfromcurrentverylowlevels. Structuralreformstodeepenthefinancialsystemandmakeitmoreinclusive,admeasurestoenhancetheinvestmentclimateandinternationalcompetitiveness,includingimprovingtransportinfrastructureandenergysupplyanditsreliabili

ty.

IMFEXTERNALRELATIONSDEPARTMENTPublicAffairs MediaRelationsE-mail: publicaffairs@imf.org E-mail: media@imf.orgFax: 202-623-6278 Phone: 202-623-7100