The International Monetary Fund (IMF)’s Executive Board has granted waivers for the nonobservance of the performance criterion on the floor on the Net International Reserves (NIR) of the central bank with regards to authorities’ commitment to provide timely and accurate data to the Fund in the future.
This follows remedial actions taken by the Malawi government linked to noncomplying disbursements under the 2018 Extended Credit Facility (ECF) arrangement.
A press release from the IMF stated that at the time of the first and combined second and third reviews under the ECF arrangement, the NIR for end-June and end-December 2018, and end-June 2019 were incorrectly reported.
“RBM’s gross reserve assets were overstated due to inclusion of both pledged term deposits and assets through contracting short-term swaps, whereas the Technical Memorandum of Understanding (TMU) definition of the gross reserves assets explicitly excluded both” reads the statement.
The Bretton woods institution noted the several corrective measures taken to remedy the situation and strengthen the RBM’s reserve management.
It also cited the dismissal of the former Governor of the RBM Dalitso Kabambe from office in July 2020; completion in mid-June 2022 of a special audit of RBM’s foreign exchange reserves for the first three reviews under the 2018 ECF arrangement and confirmed the noncomplying disbursements.
Government also published restated financial statements for 2018-19 and 2019-20 financial years in accordance with the 2021 Safeguards Assessment conducted by the IMF; and improved data reporting to the Fund.
Additionally, the Chakwera-led administration has embarked on large macroeconomic adjustment and structural reforms to rebuild gross official reserves.
The statement which quoted the Deputy Managing Director Bo Li indicated the Executive Board’s decision to reviewed Malawi’s remedial actions linked to noncomplying disbursements under the 2018 ECF arrangement.
“In view of the authorities’ commitment to provide timely and accurate data to the IMF in the future and the remedial actions already taken, the Executive Board granted waivers for the nonobservance of the performance criterion on the floor on NIR. The remedial actions taken and the additional corrective measures to be undertaken are contributing to rebuilding the reserve assets of the RBM and are, therefore, appropriate to achieve the objectives under the 2018 ECF arrangement. The IMF looks forward to its continued close engagement with Malawi”.
The ECF arrangement was approved on April 30, 2018 for a total amount equivalent to about US$112.3 million to support Malawi reform agenda.
Under the combined second and third review, Malawi requested an augmentation of access of about US$33 million to help address additional balance of payments needs associated with reconstruction following Cyclone Idai.