BLANTYRE, April 3, Maravipost: The IMF, which loans poor Malawi millions of dollars every year to support the budget, has commended the authorities in Lilongwe for making “progress in addressing governance and public financial management (PFM) weaknesses, including through implementing the government’s Action Plan.”
In a statement issued at the end of the IMF’s two-weeks mission to Malawi, its leader Tsidi Tsikata said :”Going forward, it will be important to adapt the Action Plan into a strategic and comprehensive PFM reform program, including by reflecting the findings and recommendations of the preliminary forensic audit report government received in February 2014.”
The action plan is a commitment by government to deal with corruption and fraud which reared its ugly head through the Cashgate scandal.
The British-sponsored forensic audit report showed that in just six months last year, some $30 million was looted from state coffers, in the biggest graft scandal which has seen scores of civil servants and two prominent personalities of the ruling People’s Party arrested and charged for money laundering and other offences.
Donors have suspended $150 million of aid to Malawi because of the Cashgate scandal, until Malawi cleans up the mess.
But the IMF said: “Since our last visit in November 2013, policy implementation has taken place in a difficult environment with mixed results. Against the backdrop of the suspension of substantial external assistance due to the “cashgate” scandal, fiscal policy has been appropriately restrained and has contributed to stabilizing the exchange rate. However, the resulting expenditure compression has taken a heavy toll on the delivery of public services.
It added: “Overall fiscal conditions will remain tight for the remainder of the fiscal year 2013/14, but strong revenue performance and the release of some external financing will allow some relaxation of the stringent constraints observed over the past two quarters.”
The mission added: “In discussing the fiscal outlook, the mission urged the authorities to be mindful of fiscal risks associated with potential contingent liabilities arising from the operations of state owned enterprises, including the Agricultural Development and Marketing Corporation (ADMARC), the National Food Reserve Agency NFRA, the Malawi Rural Development Fund (MARDEF) and the National Oil Company of Malawi (NOCMA).”
The mission said it welcomed the accumulation of international reserves by the RBM and its plans to further boost the level of reserves during this year’s tobacco season in order to provide the economy with a buffer against exogenous shocks.
“This will also allow the RBM to effectively intervene in the foreign exchange market to manage excessive volatility in the exchange rate arising from the highly season pattern of private foreign exchange inflows.”
“Inflation remains high at nearly 25 percent, with the disinflation process complicated by the expansion of liquidity associated with RBM purchases of foreign exchange. The mission therefore recommends that the RBM tighten monetary policy more aggressively.
“The mission and the authorities reached understandings on the broad parameters of the budget for the fiscal year 2014/15. Discussions will continue in the coming weeks to firm up the framework that will be presented to cabinet.
The team said since the budget will be submitted to parliament by the government that will be formed after the May 20 elections, the mission proposes to return to Lilongwe in June to confirm the understanding reached during this mission, before it submits its report to IMF management and the Executive Board.
Completion of the review would enable Malawi to receive a disbursement of SDR 13 million (about US$20 million) from the IMF.—MaraviPost.