Malawi's New IMF Loan Boosts Prospects for Sustained Growth
| Author | Ruby Randall/Adelaide Matlanyane/Charles Amo Yartey/Joe Thornton |
| Position | IMF African Department |
However, this growth has led to rapidly rising imports and foreign exchange shortages, which threaten the sustainability of the country’s strong recent macroeconomic performance.
Malawi was among the first countries to receive a new loan under the IMF’s Extended Credit Facility (ECF), designed to support countries with medium-term balance of payments needs. Approved by the IMF’s Executive Board in February 2010, the $80.1 million ECF program will set the conditions for sustaining growth-the key objective of Malawi’s Growth and Development Strategy-and addressing the country’s external imbalance.
Malawi’s seven-year period of uninterrupted growth (see chart)-even amid a global recession-reflects the benefits of generally sound macroeconomic policies and of debt relief from the Heavily Indebted Poor Countries (HIPC) initiative. Buoyed by several bumper harvests for tobacco, the principal cash crop, and maize, stemming from good rainfall and the distribution of subsidized fertilizer, Malawi’s agriculture-based economy weathered well the global economic storm. It also advanced further toward meeting the United Nations Millennium Development Goals.
Successive plentiful harvests have also contributed toward enhanced food security and a moderation in inflation. As a result, from 1990 to 2007, child malnutrition rates fell from over 24 percent (among the highest in sub-Saharan Africa) to about 18 percent, and child mortality rates were almost halved, from 221 per 1,000 children under 5 to 120 per 1,000.
Nevertheless, despite some economic gains, poverty remains entrenched. Malawi also remains vulnerable to weather- and aid-related shocks owing to the undiversified nature of the economy and heavy donor dependence, and has made only limited progress toward economic diversification and agricultural reform. Through its continued engagement with the international financial community and donors, Malawi aims to address obstacles to sustained growth and poverty reduction.
Malawi’s performance under its most recent Poverty Reduction and Growth Facility arrangement (from August 2005 to August 2008) was largely successful, with domestic debt declining as a share of GDP and HIPC debt relief in 2006 helping to lower the overall debt burden. In addition, fiscal and monetary restraint led to much lower inflation and interest rates, and...
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