President Mutharika Meets IMF Deputy Chief Tao Zhang:Malawi Economy On Track
Malawi President Prof. Arthur Peter Mutharika on Thursday had an audience with IMF Deputy Managing Director, Dr. Tao Zhang at Kamuzu Palace in Lilongwe, and later he hosted Zhang and his delegation to a State dinner.
Speaking during the interface, Mutharika said he was happy that IMF Deputy Chief was in the country and that his coming to Malawi had raised a lot of interest among .
Mutharika said Malawians were eager to hear more from him and that many of them were pessimistic about Malawi’s standing before the IMF.
The president expressed the concern that despite the efforts his governemnt has make so far and gaining donors confidence back, it was unfortunate to see that since he took over government in 2014.Some, especially opposition parties do not accept that his government has cleaned up the financial system mess and the nation as back on track with the Extended Credit Facility with the IMF.
“At the time I took over Government, Malawi was off-track the Extended Credit Facility program. Cashgate had damaged Malawi’s macroeconomic outlook significantly; and an equivalent of four and half percent of GDP was withdrawn from our national budget. But now, they have heard that Malawi has successfully completed the last review of the Extended Credit Facility program.” Mutharika said.
He added that Malawians know that Cashgate was a huge dis-service to our country, and it sent donors away from our budget. The suspension of donor budget support, coupled with insufficient adjustment of expenditure in line with the available resources, resulted in increased recourse to domestic financing. As a result, the targets on net domestic assets of the central bank, and net domestic financing of the central government were frequently missed.
In addition, the president outlined that just a few months into my term of office, the country experienced the worst floods in recent history that killed 106 people, displaced 230,000 people and washed away 64,000 hectares of crops. 2.8 million people became food insecure. Further, 494 million dollars’ worth of property and infrastructure was damaged.
A season later, our country experienced the El-nino phenomenon, and the country did not harvest enough food. Over 38 percent of the population was at risk of hunger. That was the environment my government had to navigate through. But I am glad that we had good plans and we received a lot of support from partners, and in the end, nobody died from hunger.
The president said the reason he was mentioning this context was to highlight the difficulties that we faced in implementing the ECF program. Weather-related shocks and policy slippages prevented the achievement of the key objectives of sustainable growth and low inflation under Malawi’s growth and Development Strategy (MGDS II). Real GDP growth of 7.5 percent and single-digit inflation that were targeted during the life of the program proved to be elusive, in part, because of a succession of large shocks. Domestic debt rose sharply from 13.8 percent of GDP in 2012 to about 21.5 percent of GDP at end-2016.
But, we have worked very hard to improve the situation. Inflation has come down, from over 24.5 percent in 2014 to 14.6 percent last month; and we are aiming to have it even lower. We have worked hard to ensure availability of food in the most difficult time. And the flexible exchange rate regime and automatic fuel pricing mechanism which we implemented served our country well.
We made progress in implementing Public Finance Management reforms and restored trust and confidence in the budget. I am pleased that we are now up to date with the reconciliation of Government’s main accounts. We have rationalized government bank accounts; and increased the coverage and security of the Integrated Financial Management Information System (IFMIS). We have published budget execution by vote; and we have strengthened Treasury cash management functions and commitment controls.
We have also made strong progress in the implementation of Monetary and Financial Sector Reforms. We have safeguarded the financial sector stability, improved monetary and exchange rate policies, and strengthened the regulatory and supervisory frameworks.
Nevertheless, challenges exist and we are working on tackling the critical supply-side bottlenecks, including the availability and reliability of electricity and water supply, transportation costs, the quality of feeder roads, and the cost and access to credit in a high inflation environment.
Further, much as we tried our best to implement the programme as agreed, we recognise there were programme-design problems which affected the achievement of the macroeconomic objectives agreed with the previous government in 2012. But we look ahead with optimism to leverage on the next programme that we intend to negotiate with the Fund soon, in order for us to achieve the objectives that eluded us in the current ECF programme.
For now, we believe we have travelled through, and are now out of the most difficult times, and we look forward to the smooth ending and conclusion of the current programme.
Based on the current environment, our objectives remain to reduce inflation to single digit by mid next year and increase real GDP growth to around 7 percent, so that we can meaningfully increase the GDP per capita of Malawi, as well as stabilizing public debt. We will have a successor MGDS that will focus on fewer priority areas, namely Agriculture and Climate Change, Energy Industrial Development and Tourism, Education and Skills Development, Transport and ICT Infrastructure, Tourism, Nsanje Inland Port, and Health and Population Management. These areas have been identified as priorities because they address the most binding constraints to economic growth and development in Malawi. Flagship projects will be implemented under each of these areas in order to achieve the desired results.
I assure you, that my government is determined to stay the course and change this country. We want to put Malawi on the road to sustained growth, prosperity and an end to the poverty of our people. I look forward to the continued support from the International Monetary Fund.
I thank you for coming to visit our country. I hope you are enjoying your stay, especially your interaction with the friendly people of Malawi. I hope you will visit Lake Malawi and that the Chambo fish has been your main dish.
Please pass my regards to Madam Christine Lagarde, Managing Director of the IMF and tell her we hope she too will visit our country soon.
Thank you for your attention.May God bless us all.