"Growth is projected to remain robust in 2009, reflecting continued strong tobacco and maize crops, the start of uranium production, and expanding wholesale and retail trade," Janet Stotsky, IMF mission chief for Malawi, said at the end of a two-week visit to the south east African nation.
According to Stotsky, production of maize has benefited from favourable rainfall and the government's subsidized distribution of fertilizer to small farmers. Inflation has trended downward during 2009, reflecting moderation in food and fuel prices and restrained credit growth.
Though Malawi has weathered the global economic storm relatively well and growth in 2008 is estimated to have reached almost 10 percent, driven by a record tobacco harvest and rapid expansion in maize and service sectors, government didn't succeed in reducing domestic borrowing, chief of the team stated.
"Although fiscal consolidation in recent years has helped contain inflation and allowed a reduction in domestic debt, in fiscal year 2008/09 (ending in June 2009), the government missed its target for domestic borrowing by a substantial margin, mainly reflecting overspending on imported fertilizer and goods and services, " she said.
Tobacco prices, in the now-completed harvest season, were lower than in 2008 but remained above their average level of earlier years.
These results buoyed domestic incomes and exports, though rising imports and as lowing of foreign investment have led to continued weakness in the balance of payments. Official reserves are low, well below the three months of import cover or
more than would be essential to reduce Malawi's vulnerability to weather, terms of trade, aid and other shocks, the IMF official said.
Nevertheless, the mission endorsed recent efforts by the Reserve Bank of Malawi to mop up excess liquidity. The mission also supported the authorities' commitm ent to a more flexible exchange regime, which would lead to a better balance between supply and demand of foreign exchange.
Structural reforms are also needed to ensure that, over time, the exchange regime supports a more rapid growth in exports relative to imports.
The IMF staff team which concluded two-week mission to Malawi on November 11, was there to conduct discussions for 2009 and to initiate discussions on a new program that could be supported by the Extended Credit Facility (ECF), a new IMF lending instrument that is expected to be established shortly.
The mission met with the Minister of Finance, the Governor of the Reserve Bank of Malawi, and other senior government officials, as well as with representatives from the donor community, civil society, and the business and banking sectors.
Addis Ababa - 12/11/2009
Pana
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