- The Executive Board of the International Monetary Fund (IMF) discussed the first review of the 12-month Staff-Monitored Program with Executive Board involvement (PMB) for Malawi. The review was approved by the Management of the IMF on July 13, 2023.
- In light of a series of shocks, program performance was mixed. The authorities are taking corrective actions to establish a track record of policy implementation, possibly paving the way to an Extended Credit Facility (ECF) arrangement.
- The Executive Board agreed with staff that Malawi is on track to achieve the objectives of the PMB.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) discussed the first review of the Staff-Monitored Program with Executive Board Involvement (PMB) for Malawi.
Malawi has been affected by a series of shocks— including an outbreak of cholera and Cyclone Freddy, which caused significant loss of life and damage to infrastructure—since the approval of thePMB on November 11, 2022. In this context, growth has been weaker and inflation higher than expected. The fiscal deficit in FY2022/23 (April/March) was larger than expected at the time of the PMB. Meanwhile, external strains—including shortage of foreign exchange, difficulties securing trade credit, and a widening spread between official and bureau exchange rates—have heightened. Despite a sharp reduction in the current account deficit, accumulation of foreign exchange reserves has been slower than expected, implying an increase in informal trade.
Cyclone Freddy has weighed on the outlook for 2023 and led to a lower growth forecast and a higher inflation forecast. Key downside risks include slippages in program implementation, delays in the ongoing external debt restructuring process, and further external shocks.
Performance under the PMB has been mixed, but the authorities are addressing challenges and continue to commit to the PMB's agreed macroeconomic adjustment path and policy reforms. The authorities are taking corrective actions necessary to demonstrate their capacity to implement the agreed macroeconomic adjustment and reforms, as well as to build the policy track record needed to support their prospective request for an Extended Credit Facility (ECF) arrangement.
At the conclusion of the Executive Board's discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair made the following statement:
"Steadfast implementation of and unwavering commitment to this Staff-Monitored Program with Executive Board Involvement (PMB) will be critical to restore macroeconomic stability and establish a track record to support a prospective request for an Extended Credit Facility (ECF) arrangement."
"Successful debt restructuring is vital to deliver macroeconomic stability. The authorities' external debt restructuring strategy aims to bring external debt service down substantially through a significant treatment of commercial debt and official bilateral debt. A concerted effort among the authorities, their creditors, and their international development partners will be crucial to ensure successful implementation of the external debt restructuring strategy."
"Fiscal discipline, supported by a robust Public Financial Management (PFM) system and timely production of comprehensive fiscal reports, remains critical. Concerted effort by the authorities and other domestic stakeholders to prepare for fiscal financing challenges is important. Price stability supported by fiscal consolidation is critical to prevent a further erosion of purchasing power for those living in poverty and food insecurity. Rebuilding buffers is critically important to reduce Malawi's vulnerability to external shocks."
"Addressing weakness in governance and institutions remain important priorities, as demonstrated by the recent fertilizer deal, which is concerning from a governance perspective. The authorities' governance and procurement practices should be strengthened to avoid such incidents in the future."
"The Management-approved Staff Monitored Program (SMP) is sufficiently robust and remains on track to meet its objectives."
Table 1. Malawi: Selected Economic Indicators, 2021–28 |
| | 2021 |
| 2022 |
| 2023 |
| 2024 |
2025 |
2026 |
2027 |
2028 |
| | Actual |
| PMB Approval |
Est. |
| PMB Approval |
Proj. |
| Proj. |
National accounts and prices (percent change, unless otherwise indicated) |
GDP at constant market prices |
4.6 |
| 0.8 |
0.8 |
| 2.4 |
1.7 |
| 3.3 |
3.8 |
4.3 |
4.5 |
4.6 |
Nominal GDP (billions of Kwacha) |
9,976 |
| 11,354 |
11,799 |
| 14,018 |
14,768 |
| 17,728 |
20,462 |
22,948 |
25,503 |
28,211 |
GDP deflator |
8.2 |
| 17.3 |
17.3 |
| 20.6 |
23.1 |
| 16.3 |
11.2 |
7.5 |
6.3 |
5.8 |
Consumer prices (end of period) |
11.5 |
| 26.0 |
25.4 |
| 20.4 |
24.4 |
| 15.2 |
9.9 |
7.6 |
6.5 |
6.5 |
Consumer prices (annual average) |
9.3 |
| 20.8 |
20.8 |
| 22.7 |
24.8 |
| 18.3 |
12.2 |
8.1 |
6.8 |
6.5 |
| | | | | | | | | | | | | | |
Investment and savings (percent of GDP) |
National savings |
-5.2 |
| -4.8 |
9.9 |
| -3.6 |
4.7 |
| 2.5 |
0.7 |
1.7 |
3.4 |
3.6 |
Government |
-5.9 |
| -5.1 |
-5.6 |
| -7.8 |
-6.2 |
| -6.4 |
-5.8 |
-4.6 |
-2.3 |
-1.3 |
Private |
0.7 |
| 0.3 |
15.5 |
| 4.2 |
11.0 |
| 9.0 |
6.5 |
6.3 |
5.7 |
4.9 |
Gross investment |
8.9 |
| 9.9 |
13.1 |
| 10.1 |
12.7 |
| 11.5 |
9.3 |
9.3 |
9.8 |
9.5 |
Government |
6.4 |
| 6.9 |
10.2 |
| 7.3 |
9.9 |
| 8.7 |
6.2 |
5.8 |
5.5 |
5.4 |
Private |
2.6 |
| 3.0 |
3.0 |
| 2.8 |
2.8 |
| 2.8 |
3.1 |
3.4 |
4.2 |
4.2 |
Saving-investment balance |
-14.1 |
| -14.8 |
-3.2 |
| -13.6 |
-7.9 |
| -9.0 |
-8.6 |
-7.6 |
-6.3 |
-5.9 |
| | | | | | | | | | | | | | |
Central government (percent of GDP on a fiscal year basis) 1, 2 |
Revenue |
14.6 |
| 15.4 |
14.3 |
| 15.5 |
17.4 |
| 17.7 |
19.8 |
18.9 |
17.3 |
18.1 |
Tax and nontax revenue |
12.9 |
| 13.4 |
12.5 |
| 13.9 |
13.5 |
| 14.9 |
17.5 |
17.2 |
15.9 |
17.0 |
Grants |
1.7 |
| 1.9 |
1.8 |
| 1.6 |
3.9 |
| 2.7 |
2.3 |
1.6 |
1.4 |
1.1 |
Expenditure and net lending |
21.9 |
| 24.3 |
22.6 |
| 24.6 |
29.3 |
| 27.5 |
27.8 |
25.4 |
23.6 |
23.1 |
Overall balance (excluding grants) |
-9.1 |
| -11.6 |
-10.8 |
| -10.6 |
-15.8 |
| -13.2 |
-11.7 |
-9.0 |
-7.8 |
-6.2 |
Overall balance (including grants) |
-7.4 |
| -9.7 |
-9.0 |
| -9.0 |
-11.8 |
| -10.5 |
-9.4 |
-7.3 |
-6.4 |
-5.0 |
Foreign financing |
1.3 |
| 2.8 |
2.6 |
| -0.6 |
3.3 |
| 0.6 |
0.0 |
-0.1 |
-0.4 |
-0.2 |
Total domestic financing |
8.0 |
| 7.4 |
6.9 |
| 5.6 |
8.5 |
| 8.4 |
8.6 |
6.4 |
6.6 |
5.3 |
Financing gap/residual gap |
0.0 |
| 0.0 |
0.0 |
| 4.1 |
0.0 |
| 1.5 |
0.8 |
1.0 |
0.2 |
0.0 |
Discrepancy |
-0.1 |
| -0.8 |
-0.7 |
| 0.0 |
0.0 |
| 0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Primary balance |
-3.6 |
| -5.4 |
-5.0 |
| -3.3 |
-6.8 |
| -4.9 |
-1.6 |
1.2 |
1.5 |
2.1 |
Domestic primary balance 3 |
-2.5 |
| -4.1 |
-3.8 |
| -0.6 |
-3.8 |
| -2.8 |
0.5 |
2.9 |
2.8 |
3.1 |
| | | | | | | | | | | | | | |
Money and credit (change in percent of broad money at the end of the period, unless otherwise indicated) |
Broad money |
30.0 |
| 27.5 |
38.8 |
| 23.5 |
25.2 |
| 20.0 |
15.4 |
12.2 |
11.1 |
10.6 |
Net foreign assets |
-3.9 |
| 42.1 |
-13.8 |
| 19.1 |
-5.3 |
| 8.4 |
2.8 |
7.2 |
4.4 |
6.3 |
Net domestic assets |
33.9 |
| -14.6 |
52.6 |
| 4.3 |
30.5 |
| 11.7 |
12.6 |
5.0 |
6.7 |
4.3 |
o/w Net claims on the government |
41.0 |
| 28.0 |
39.0 |
| 26.0 |
26.1 |
| 18.8 |
10.6 |
14.3 |
10.5 |
15.3 |
Credit to the private sector (percent change) |
22.2 |
| 27.9 |
24.1 |
| 14.7 |
16.0 |
| 8.2 |
5.1 |
8.6 |
8.8 |
10.4 |
| | | | | | | | | | | | | | |
External sector (US$ millions, unless otherwise indicated) |
Exports (goods and services) |
1,191 |
| 1,294 |
1,125 |
| 1,421 |
1,322 |
| 1,454 |
1,568 |
1,662 |
1,814 |
1,940 |
Imports (goods and services) |
3,332 |
| 3,406 |
1,835 |
| 3,173 |
2,487 |
| 2,608 |
2,700 |
2,744 |
2,818 |
2,936 |
Gross official reserves 4 |
429 |
| 172 |
120 |
| 409 |
499 |
| 747 |
846 |
996 |
1,106 |
1,202 |
(months of imports) |
1.6 |
| 0.6 |
0.6 |
| 1.5 |
2.3 |
| 3.3 |
3.7 |
4.2 |
4.5 |
4.7 |
Net international reserves 5 |
-834.8 |
| -584.1 |
-1,237.9 |
| -312.2 |
-673.1 |
| -594.4 |
-575.9 |
-438.7 |
-321.4 |
-156.3 |
Current account (percent of GDP) |
-14.1 |
| -14.8 |
-3.2 |
| -13.6 |
-7.9 |
| -9.0 |
-8.6 |
-7.6 |
-6.3 |
-5.9 |
Current account, excl. official transfers (percent of GDP) |
-14.1 |
| -14.8 |
-3.8 |
| -13.6 |
-7.9 |
| -8.9 |
-8.6 |
-7.5 |
-6.3 |
-5.9 |
Current account, excl. project related imports (percent of GDP) |
-12.0 |
| -12.3 |
0.2 |
| -10.8 |
-4.3 |
| -5.8 |
-6.3 |
-5.7 |
-4.9 |
-4.3 |
Real effective exchange rate (percent change) |
-5.7 |
| ... |
2.9 |
| ... |
... |
| ... |
... |
... |
... |
... |
Overall balance (percent of GDP) |
0.0 |
| -1.7 |
-0.1 |
| -2.4 |
-2.6 |
| 0.1 |
-0.2 |
0.0 |
0.6 |
1.2 |
Financing gap (percent of GDP) |
0.0 |
| 2.8 |
0.0 |
| 4.9 |
5.8 |
| 2.6 |
1.6 |
1.9 |
0.8 |
0.1 |
Terms of trade (percent change) |
-19.0 |
| -14.9 |
-14.3 |
| -0.5 |
11.4 |
| -1.8 |
1.8 |
2.2 |
2.1 |
-0.9 |
| | | | | | | | | | | | | | |
Debt stock and service (percent of GDP, unless otherwise indicated) |
External debt (public sector) |
31.5 |
| 38.9 |
34.4 |
| 37.1 |
37.1 |
| 35.3 |
33.5 |
30.9 |
28.8 |
27.0 |
NPV of public external debt (percent of exports) |
218.6 |
| 202.3 |
264.7 |
| 176.6 |
187.1 |
| 162.3 |
145.9 |
132.3 |
119.3 |
110.1 |
Domestic public debt 6 |
30.0 |
| 37.7 |
40.8 |
| 37.5 |
43.2 |
| 44.9 |
47.4 |
48.6 |
49.3 |
48.1 |
Total public debt 6 |
61.5 |
| 76.6 |
75.2 |
| 74.6 |
80.2 |
| 80.2 |
80.9 |
79.6 |
78.1 |
75.1 |
External debt service (percent of exports) |
15.2 |
| 55.6 |
12.0 |
| 26.7 |
59.8 |
| 25.2 |
20.1 |
18.3 |
12.9 |
10.6 |
External debt service (percent of revenue excl. grants) |
4.9 |
| 43.2 |
7.8 |
| 24.6 |
44.7 |
| 23.6 |
18.7 |
17.0 |
11.6 |
9.4 |
Sources: Malawian authorities; and IMF staff estimates and projections. |
1The financial year, 2021, runs from July 1, 2020 to June 30, 2021. FY2021/22 covers 1 July 2021 to 31 March 2022, to accommodate the transition to an April - March fiscal year. starting from FY2022/23. |
2Please note that government fiscal statistics are reported following the Government Finance Statistics Manual (2014) starting 2020 projections and going forward. |
3Domestic primary balance is calculated by subtracting current expenditures (except interest payment) and domestically-financed development expenditures from tax and nontax revenues. |
4Gross official reserves figures include encumbered deposits in 2021; all figures from 2022 onwards do not include encumbered deposits. Readily available gross official reserves were US$71.7 million in 2021. |
52021 NIR is calculated as gross official reserves minus a sum of Use of Fund Credit, repayments projection of medium-term debt by remaining maturity, and short-term swap outstanding. 2022 NIR is calculated as define in the TMU at the time of the PMB application. Thereafter, the net international reserves reported not only subtract foreign currency drains (FCD) as defined in the TMU of the First Review of the PMB, but also all outstanding foreign currency debt service to external creditors to which the RBM (including as an agent of the government) is in arrears and or servicing via other means, in line with debt restructuring strategy. |
6Domestic debt is at face value and future borrowings is at cost value. |
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