Malawi needs to strengthen public financial management

Malawi's economic growth is expected to maintain average level in the coming year, despite shocks experienced as a result of oil and commodities high prices. However, the southern African state has been advised to pay special attention in reducing its domestic debt in order to support and steadily build-up its international reserves.

According to International Monetary Fund (IMF) Malawi will immediately need to maintain macroeconomic and financial stability over coming year, especially in view of pressures created on the fiscal position and balance of payments by recent price shocks.

IMF has further observed that Malawi has relatively low reserves in comparison with most its peers in the region, saying it was also important that ongoing structural reforms, notably public financial management and monetary and financial system, should be strengthened.

"Malawi continues to demonstrate strong economic performance. Growth is estimated to have been 8.6 percent in 2007 - supported by ongoing strength in agricultural sector and growing contributions from construction, manufacturing, and services - and is projected to be 8.7 percent in 2008," said IMF at end of its mission today which was aimed at discussing a new arrangement between government of Malawi and IMF.

The IMF mission also noted that while government was this year planning to meet its people half way in food production, especially with increased fertiliser prices, it was also prudent that improvements are made in domestic revenue performance, and exercising spending restraint elsewhere in budget.

"The mission fully supports government's intentions to adhere to fiscal framework underlying 2008/09 budget recently passed by National Assembly and to further reduce domestic public debt. Reduction in public debt, both domestic and external, since 2005 has generated savings of around 4 percent of GDP in debt service costs-releasing these funds for poverty reduction and other high priority spending activities," observed IMF mission.

IMF further observed improved and favourable export trends in Malawi, saying exports have almost doubled over the last 4 years and are expected to receive a further boost from 2009 on as uranium production comes on stream. "While inflation has been rising over recent months, this largely reflects the upward move in international oil prices. With support from moderation of oil prices, adequate domestic food supplies, and ongoing monetary restraint, inflation is expected to return to the 7 to 8 percent range," concluded IMF mission, which also expressed optimism of signing of a new arrangement by October during the annual IMF-World Bank meetings in Washington.

During their almost two weeks visit to Malawi, IMF mission headed by Mr Andrew Berg, held extensive discussions with Minister of Finance, Governor of Reserve Bank, and senior government officials. The team also met with representatives from donor community, civil society, and private sector. Malawi has recently successfully completed three-year arrangement under Poverty Reduction and Growth Facility (PRGF) of IMF.