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ECONOMY
The International Monetary Fund reopens financial aid frozen from 2000
On 20 October, the International Monetary Fund re-approved the Poverty Reduction Growth Facility which was suspended in 2001 following financial indiscipline, non-compliance with structural reforms, poor governance and top-level corruption and intolerance to political dissent. This means Malawi will be able to tap financial aid from her traditional donors, after almost three years of a freeze on aid
In December 2000, the International Monetary Fund (IMF) had approved a three-year (2000-2003) US $55 million Poverty Reduction Growth Facility (PRGF) programme for Malawi. However, only US $8 million was made available at that time, with a whopping US $47 remaining, but only when Malawi showed signs of compliance with PRGF rules.
Following the IMF‘s 20 October 2003 announcement, Malawi’s Finance Minister Friday Jumbe, told journalists there are a number of conditions laid down by the IMF, among which is fiscal discipline i.e. when it comes to spending, Malawi must remain within its available resources. Also, «the country needs to be transparent regarding monetary issues. Rules and regulations on spending must be followed and that the Central Bank must control the amount of currency it prints».
In principle, the IMF has approved the release of US $9.2 million and to resume interim assistance under the Heavily Indebted Poor Countries (HIPC) initiative by approving the release of about US $6.6 million, to help Malawi meet its debt service payment on its existing debt to the IMF.
Other donors follow
Once the IMF announced its resumption of financial aid, other donors who had suspended aid following the 2001 action by the Bretton Wood Institutions, resumed their aid programmes to Malawi. For example, the Common Approach to Budgetary Support (CABS), a grouping of European donor countries including the European Union, announced the resumption of budgetary support. CABS had suspended aid to Malawi in November 2001, alleging corruption, political intolerance and interference with the judiciary as their reasons. Now, Malawi will receive an immediate aid package representing some Malawi Kwacha 5.7 billion.
However, a statement from CABS, indicates that Malawi will only receive the money on condition that the government strictly controls public spending and carries out structural reforms in governmental departments, parastatals, the agricultural sector and the civil service, in order to restore economic stability.
Furthermore, CABS asks the Malawi government to make sure it starts immediate repayment of its huge domestic debt, presently standing at Malawi Kwacha 50 billion, and implements new financial management systems. CABS says it will join with the IMF in conducting three-monthly reviews to check that the government is «toeing the line» regarding the conditions imposed, failing which, aid will again be suspended.
The Minister of Finance has assured the donor community, of government compliance to the conditions laid down. His ministry will do everything possible to ensure that the government lives up to the donors’ expectations. He warns: «Everybody should be warned that my ministry will even be more vigilant on financial prudence than ever before. We can’t afford to have this programme slip away from our hands once again. We have reached very worrying levels regarding the economy».
All in all, it’s a unique occasion for Malawi to sort out its disturbing economic situation.
- Frank Jomo, Malawi, October 2003 — © Reproduction authorised, with usual acknowledgment