Last week the International Monetary Fund announced that its had extended it Programme with the Malawi Government after the completion of the Seventh and Eighth Reviews under Malawi\u2019s ECF Arrangement. The approval now means that the programme will continue until December 31, 2016. This approval of the extension, which was requested by the Malawi government, comes with an immediate release of funds amounting to US$ 76.8 million). It is important to understand that this is not a grant; this is a loan and will have to be repaid. The total disbursement under the whole programme is US$ 169.1 million.<\/p>\n
I am, therefore, not sure whether we as Malawians should be celebrating or cautious about this. I have no problem with borrowing, if the borrowing is necessary such that it will help the productive capacity of the country. My understanding is that the IMF\u2019s programme is mainly aimed at ensuring that the macro\u2014economic stability of the country is ensured. If that is the belief then I would be very sympathetic to the government for having this extension extended. However, macroeconomic stability is not an end in itself but a means to an end. There is, therefore, a need for the government to safeguard and improve on the gains made and put in measures to deal with inflationary pressures, divergence of the monetary policy rate and treasury bill rates, exchange rate volatilities, rising public debt.<\/p>\n
Perhaps this is the point to remind the Malawi population that this extension was necessary because according to the IMF the country was off track at the end of June 2015. The main issues leading to the policy slippages were that the government recruited teachers, increased civil servant wages and collected less revenue.<\/p>\n
This is not surprising because when one borrows money from someone there are always costs. On top of repaying the principal (it will have to come from somewhere), there is also the interest to be paid. It is, therefore, not surprising that according to the draft financial statements for 2016\/2017, Malawi spent K116.2 billion on interest payments alone. This is more than the ,K93.6 billion that was spent on health. When a country is spending more on interest repayments than it spends on taking care of the health of its people then borrowing is no longer a solution but a problem.<\/p>\n
In the current draft budget being debated in Parliament, the allocation for debt charges is K143.5 billion. Compare this to the K147.6 billion allocated to the Ministry of Education, Science and Technology; and K95.8 billion to the Ministry of Health. Once again, when we spend almost the same amount on education as we spend on debt repayments, then loans are a problem and no longer a solution. When the Ministry of Health gets 30 percent less than debt charges, then we are in trouble as a nation.<\/p>\n
It is important to recognise that while I make this case, I do appreciate that the move made by the government to seek external assistance from the IMF and at that time this move a positive one and came as a huge relief to the country and the investing community. The decision was not only about the balance of payments support, but also to strengthen public finances and ensure fiscal discipline in order to restore economic stability and growth. It was also believed that this move would in a way advance policy credibility and confidence of the international community in the economy.<\/p>\n
However, our credibility in the rest of the world took a heavy pounding by the cashgate scandal. The issues of corruption and financial mismanagement are at the heart of this credibility. This government needs to deal with this as a matter of life and death. That is why for some of us, any cashgate conviction is good news. The fact that there are several convictions in the cases is a good step towards reclaiming our credibility. The road ahead, however, looks to be long and challenging for the country.<\/p>\n
In the long run what will take Malawi forward are not loans for the sake of loans. When we begin to invest in the productive capacity of the country and start to put resources in sectors that matter like education, and health. Government must put in measures to grow the economy particularly the productive real sectors (agriculture and manufacturing which have been on the decline). The country literally imports everything and exports very little. This huge import dependency obviously feeds into the exchange rate vulnerabilities.<\/p>\n
If the economy does not structurally transform, then we will continue to spend more on debt repayments than health for example. In addition the fiscal deficit targets are also too ambitious given the structural weaknesses, poor management of the country\u2019s public finance, and the slowdown of economic growth due to the unfavourable weather conditions. The programme, therefore, needs to be re-examined, with the view to adjusting the fiscal and growth targets of more realistic levels. Otherwise, the solution is the problem.<\/p>\n","protected":false},"excerpt":{"rendered":"
Last week the International Monetary Fund announced that its had extended it Programme with the Malawi Government after the completion of the Seventh and Eighth Reviews under Malawi\u2019s ECF Arrangement. The approval now means that the programme will continue until December 31, 2016. This approval of the extension, which was requested by the Malawi government, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-26959","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/posts\/26959","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/comments?post=26959"}],"version-history":[{"count":1,"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/posts\/26959\/revisions"}],"predecessor-version":[{"id":26961,"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/posts\/26959\/revisions\/26961"}],"wp:attachment":[{"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/media?parent=26959"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/categories?post=26959"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/archive.times.mw\/index.php\/wp-json\/wp\/v2\/tags?post=26959"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}