The International Monetary Fund (IMF) has said that Malawi’s economy is improving despite the country being hit hard by negative impacts of drought.
The statement released by IMF Chief of Mission Oral Williams on Wednesday after visiting the country to conduct discussions on the ninth and final review under the Extended Credit Facility (ECF) arrangement has revealed that the economic outlook of Malawi is improving with better prospects of agricultural output including the maize harvest.
IMF said it expects Malawi’s economy – which fell below 3 percent in 2016 after two consecutive years of drought – to pick up in the range of 4 to 5 percent in 2017.
“The consumption-led recovery is expected to be driven mainly by a rebound in agriculture, wholesale and retail, and telecommunications sectors. Annual inflation has now fallen to 16.1 percent (year-on-year) in February 2017 which is its lowest level in recent years. Both food and non-food inflation rates have contributed to the downward trend, reflecting prudent monetary and fiscal policies and the stabilization of food prices on account of humanitarian response,” reads part of the statement.
“Tight monetary policy, which kept short-term money market rates positive in real terms and stronger fiscal management, was key to restoring confidence in the exchange rate that has remained stable. Commitment to the flexible exchange rate regime and the automatic fuel pricing mechanism continued to help Malawi to respond to external shocks as evidenced by the foreign exchange reserve cover that stabilized at about three months of imports,” adds the statement.
However, IMF has warned that there is a need to solidify the gains in macroeconomic stability by limiting spending to available resources and safeguarding external and financial sector stability.
“Prudent fiscal policy, when combined with monetary policy geared toward maintaining positive real interest rates, should facilitate the achievement of the program’s objective of single digit inflation,” said IMF in the statement.
Based on progress of Malawi to date, it is anticipated that a request to complete the ninth review under the Extended Facility Programme program could be submitted for consideration by the IMF Executive Board in June 2017.
On his part, Finance Minister Goodall Gondwe said government will work hard to maintain the status of the economy.
“The advice we get from IMF is very important because they provide a valuable yardstick of how we can manage our economy and we will continue doing well especially on public finance management so that we are not off track again,” said Gondwe.