Malawi, one of Africa’s poorest economies is reeling from effects of the 2013 cashgate scandal that saw the country losing about 1.2 billion rand of public funds through looting, theft and corruption.
The scandal saw the country with almost 37 per cent of its budget coming from foreign support losing financial support and aid injection from IMF and other western countries.
The IMF says 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.
According to the fund, Malawi’s macroeconomic outlook and performance under the IMF-supported programme was significantly damaged by a large scale theft of public funds and by policy lapses in the run-up to elections but the Fund is positive about the current administration.
The country is set to receive about 18.1 million US dollars as an Extended Credit Facility (ECF) arrangement.
“The new administration is committed to rebuilding trust in public institutions and bringing the IMF-supported program back on track, including through maintaining a flexible exchange rate regime and the automatic fuel pricing mechanism,” said the fund.
The fund added that bringing inflation down to single digits and boosting official foreign exchange reserves remain key policy objectives.
“Addressing weaknesses in public financial management is necessary to restore confidence in the budget process and foster donor re-engagement. The authorities’ steadfast implementation of a comprehensive strategy in this area remains an urgent policy priority,” added the fund.
“The central bank is committed to tightening monetary policy as needed to keep inflation on a downward path. Measures taken in late 2014 have already helped reduce liquidity and stabilize the currency. Steps underway to curb deficit financing by the central bank should enhance the credibility of monetary policy.”
The fund said improved prudential and regulatory frameworks are key to safeguarding the financial sector’s stability and supporting growth adding that the recently-completed diagnostic assessments of the banking system will be used to design a strategy to address sector-wide issues.