IMF says Malawi’s economic outlook remains difficult

Malawi’s economic outlook remains difficult reflecting the negative impact of weather-related shocks, the ongoing suspension of budget support, persistently high inflation and weaker global demand which could hurt the country’s exports, the International Monetary Fund (IMF) Executive Board has said. [caption id="attachment_99784" align="alignright" width="600"] President Mutharika meets IMF Head of Mission Oral Williams at Kamuzu Palace - Pic by Stanley Makut[/caption] The global multi-lateral lender said in a statement at the end of the 2015 Article Four consultation with Malawi. IMF said the real Growth Domestic Product (GDP) is projected to fall by 2.7 percentage points to three per cent due in large part to heavy floods in January followed by drought which resulted in an estimated decline of about 30 percent in the maize harvest (the main staple). An estimated 2.8 million persons remain at risk of food insecurity. The funs also advises that with implementation of sound macroeconomic policies and structural reforms, it is expected that growth will rebound gradually over the medium term along with a decline in inflation. “Growth is projected to rise gradually to about 5.5 per cent over the medium term. Inflation is expected to rise to 25.4 per cent at end-2015 and is estimated to ease in 2016 and reach single digits at end-2017 if fiscal and monetary policies tighten, and international prices for food and petroleum products remain low,” says the IMF in a statement released on Tuesday. It said the external current account deficit will remain in the eight per cent range over the medium term reflecting the demand for imports associated with developmental projects, rapid population growth, and the slow pace of export diversification. IMF is encouraging authorities to implement structural reforms to remove supply bottlenecks, increase agricultural productivity and improve the business environment The global lenders also asked Malawi to accelerate public financial management reforms to restore trust and confidence in the budget process and foster donor re-engagement, While commending economic reforms undertaken in mid-2012 under the Joyce Banda rule, which it says transformed the policy environment and greatly improved the outlook of the economy, the fund observes that uneven policy implementation, high inflation, and a weak balance of payments position continue to pose macroeconomic challenges. “Furthermore, the ‘Cashgate’ scandal uncovered in 2013 involving a large-scale theft of public funds damaged Malawi’s economic outlook significantly,” says IMF. With donor withdraw, IMF recommended broadening the tax base, strengthening tax compliance, and modernizing tax administration The Fund emphasized that ensuring medium term fiscal sustainability while safeguarding social spending will require improvements in the allocation and targeting of public spending IMF says directors welcomed Malawi’s commitment to the flexible exchange rate regime and the automatic fuel pricing mechanism, as they have served Malawi well. The duns cautioned that changes to the fuel import regime involving a greater role for the state‑owned company should be transparent and include safeguards against the emergence of contingent liabilities for the budget. IMF called for intensified efforts to enhance financial sector resilience and its role in fostering inclusive growth