By Mabvuto Banda
The International Monetary has approved the review of Malawi’s economic performance under the extended credit facility (ECF) enabling the southern African nation to access SDR 13.02 million (about $18.1 million) amidst a crippling donor aid freeze
The board which met in Washington DC said that Malawi successfully completed the fifth and sixth review under the programme and also approved an extension of the current ECF by six months
“The Board also approved a request for an extension of the current ECF arrangement by six months to May 22, 2016 and the rephasing of disbursements associated with the seventh and eighth reviews,” reads the statement in part.
They also accepted the authorities’ request for waivers of non-observance of performance criteria related to the net domestic assets of the central bank, net domestic borrowing by the government, the ceiling on new non-concessional external debt maturing in more than one year, and the ceiling on non-accumulation of external payments arrears.
Finance Minister Goodall Gondwe told Reuters in an interview that the IMF’s decision will build confidence in to what the new administration is doing and may help unlock budget support being withheld by key donors over graft.
“This is good news for us and shows the confidence that the Fund has in our efforts. This will sure give confidence to our traditional donors to come in because this is crippling our economy,” Gondwe told Reuters in a telephone interview. Western donors are withholding direct aid which traditionally accounts for 40 percent of the national budget.
“We are committed to rebuilding trust in public institutions and bringing the IMF-supported program back on track, through maintaining a flexible exchange rate regime and bringing inflation down to single digits and boosting official foreign exchange reserves remain key policy objectives,”Gondwe said.
The Fund said Malawi’s macroeconomic outlook and performance under the IMF-supported program was significantly damaged by a large-scale theft of public funds and by policy lapses in the run-up to elections.
“The breach of governance resulted in the suspension of budget support from donors, which has led to increased recourse to central bank financing, accumulation of domestic arrears, exchange rate depreciation, and high inflation,” reads the IMF statement in part.
Donors led by Britain, Malawi’s former colonial masters, have been withholding direct aid for over a year now because of a corruption scandal popularly known as cash gate in which top government officials and ministers siphoned millions of dollars from the public purse.
The Cashgate” scandal saw central government pay out for goods and services that were never supplied and senior officials arrested with wads of banknotes in their car boots and houses.
“Addressing weaknesses in public financial management is necessary to restore confidence in the budget process and foster donor re-engagement…” said Mitsuhiro Furusawa, IMF’s Acting Chair and Deputy Managing Director,at the conclusion of the Executive Board’s discussion