By Moses Michael-Phiri
BLANTYRE
The International Monetary Fund (IMF) has urged Malawi to tighten spending in order to mitigate the impact of inflation on the most vulnerable segments of the population and avoid falling further into debt.
"The [IMF] mission has emphasized the need for the Malawi government to exercise greater control over spending commitments in line with available financing to avoid the accumulation of additional debt," Oral Williams, head of the IMF's mission to Malawi, said in a statement issued following a review of the country's Extended Credit Facility (ECF) scheme.
The IMF team held discussions with Finance Minister Goodall Gondwe, Reserve Bank of Malawi (RBM) Governor Charles Chuka, Secretary to the Treasury Ronald Mangani, other senior government officials, national stakeholders, and Malawi's development partners.
Williams said preliminary indications had shown that economic activity had demonstrated considerable resilience, with real GDP growth for 2014 now projected at between 5 and 6 percent.
He, however, worries that Malawi's inflation remains high, in part because of uncertainties about the resumption of budget support.
The IMF official noted that the exchange rate had weakened considerably, exacerbating inflationary pressures.
The Malawian kwacha has depreciated by about 20 percent in recent weeks, to 520 kwachas to the dollar from 450.
The IMF mission noted that, despite a favorable outlook for international food and fuel products, policy actions needed to bring inflation rates to single digits would likely slow economic growth in 2015.
"Shortfalls in budget support due to the 'cash-gate' scandal have led to challenges in the execution of the previous and current year's budget, with increased recourse to costly domestic financing and the accumulation of significant domestic debt," said Williams.
The cash-gate scandal involved mismanagement and the plunder of public resources, which ultimately led to the loss of over $100 million last year.
It led donors to suspend about $150 million in budget support and aid to the Southern African nation.
Malawi's IMF program also went off track as a result of the scandal.
-Upbeat-
According to Williams, the IMF mission's discussions focused on the policies necessary to return Malawi's economy to a strong, noninflationary and inclusive path towards growth.
He said significant agreement had been reached in a number of areas, including fiscal and monetary policy.
For his part, Gondwe, the Malawian finance minister, was upbeat that the economy would be back on track sooner than later.
"This is a lean period [as Malawi struggles with foreign exchange due to low reserves]," Gondwe told Anadolu Agency in a brief telephone interview. "We understand this, but the economy will be back on track."
The government has reiterated its commitment to strengthening public financial management systems and being guided by gaps identified in a recently released forensic audit report.
The report, which revealed the details and names of those involved in the cash-gate scandal, was made public on October 30.
Authorities recently arrested several people involved in the scandal, while three government officials have been convicted in ongoing cash-gate-related trials.
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