June 7, 2004

IMF welcomes the President's commitment to fiscal discipline

The International Monetary Fund (IMF) has welcomed a commitment to fiscal discipline by Malawi's new President Bingu wa Mutharika. The IMF had a patchy relationship with the previous government over extra-budgetary spending not related to poverty alleviation. An IMF staff team said it had "very productive discussions with" wa Mutharika, the Reserve Bank governor Dr Ellias Ngalande, as well as the donor community in Malawi. Wa Mutharika had reiterated his commitments to policies that would establish macroeconomic stability outlined in his inauguration speech. He "pledged to move forward with plans to reduce unnecessary government spending and bring better services to the poor. The commitments made, when implemented, will go a long way to helping restore discipline in the public sector finances," the Fund said in a statement.

Since late 2000, the IMF had provided Malawi with about US $30 million in financing. "This amount was equally divided between emergency assistance related to the 2002 drought and loans from the IMF's Poverty Reduction and Growth Facility (PRGF) in support of the government of Malawi's economic programme. Regrettably, Malawi's PRGF arrangement has not moved forward in recent months mostly because of government spending that was outside the 2003/04 budget (July-June) and the supplementary budget approved by parliament in March 2004," the IMF noted. It complained that the extra-budgetary spending on goods and services "was not pro-poor and it resulted in government borrowing that kept interest rates very high".

"Staff will begin preparatory work with the government on fleshing out a strong adjustment and reform programme that could be supported with a new PRGF arrangement. This process would provide low-cost lending to Malawi, form the basis for further external debt relief under the Heavily Indebted Poor Countries Initiative (HIPC), and help unlock donor budgetary support," the IMF added. The president had asked that a full team from the IMF return to Malawi in the near future to map out the best way to move forward.

"[Wa Mutharika] assured the IMF team that all efforts were being made to close out the 2003/04 financial year as prudently as possible so that the new economic team could start afresh. His government was already at work on a budget for 2004/05, but would use a provisional three-month spending authorisation to ensure that the new plan is in line with both priorities and resources available," the Fund said. (IRIN)

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