By Judith Ugwumadu | 21 January 2014
The International Monetary Fund has released suspended funding to Malawi after finding that its economic reforms were progressing, despite last year’s ‘cash-gate’ scandal.
Cash-gate exploited weaknesses in the Malawi’s public financial management systems and saw millions of dollars in public funds looted from government coffers. In November, the IMF said it would delay funding under its extended credit facility arrangement until the fiscal situation became clear and necessary corrective measures had been put in place.
Other development partners also withheld financial aid, as they were reluctant to release funds into Malawi’s vulnerable PFM systems. This put Malawi’s budget, which is significantly reliant on international donors, at risk, the IMF noted.
However, following further reviews, the IMF said on January 17 that Malawi’s macroeconomic performance had remained broadly satisfactory and the policy reforms in started in 2012 were showing positive results. As a result, it agreed to release $20m in funds to the southern African country.
‘The recent fraud and misappropriation of substantial amounts of public funds and the associated loss of programmed financial aid has negatively affected macroeconomic outlook,’ said Naoyuki Shinohara, deputy managing director and acting chair at the IMF.
‘To restore confidence in the authorities’ managements of the economy, it will be important for the government to investigate the fraud thoroughly and to implement the action plan to address the weaknesses in public financial management exposed by the fraud.’
Malawi developed the plan to close loopholes in the Integrated Financial Management and Information System (IFMIS), which made it vulnerable to fraud last year.
Shinohara acknowledged that the Malawi government remained committed to closely monitoring expenditure and financing to prevent a recurrence of the ‘fiscal slippage’ that resulted in a substantial increase in domestic borrowing.
Malawi finance minister Maxwell Mkwezalamba said he hoped other donors would follow the IMF’s lead and release funding.
‘This is a green light to our development partners to continue assisting us,’ he told a news conference.
But Mabvuto Bamusi, an economic and social commentator, warned that, despite the release of IMF funds, Malawi could not be complacent.
‘There is a lot of caution that needs to be taken, and one of the cautions is that the [Malawi government] should avoid being overexcited and pretending that everything is back to normal because we still have the scenario where the cost of living is still very high and that cannot simply be addressed by the $20m from the donor community.’
