The passing of the 2012/13 national budget by parliament will be crucial to the approval of the new IMF aid program for Malawi by the Fund’s executive board, a senior IMF official said on Wednesday.
Last week the Fund said it had reached a staff-level understanding with Malawi on an economic program for three that could be supported by a new Extended Credit Facility (ECF) arrangement in the amount of SDR104 million (about US$157 million).
“The successful passage of the [FY2012/13] budget will help pave the way for approval of the new ECF program by the IMF’s Executive Board in July 2012,” said Ruby Randall, IMF resident representative for Malawi.
In the Fund’s view, the budget for FY2012/13 addresses the country’s pressing near- and medium-term needs, she said.
“In particular, it strikes an appropriate balance between the need for fiscal restraint in support of the restoration of macroeconomic stability; strengthened social safety nets to safeguard the poor and vulnerable; and improvements in the business climate so as to help foster private investment, job creation and growth,” Randall said.
She said the proposed 2012/13 financial plan budget promotes macroeconomic stability, and is in line with recent ECF program talks.
Randall said budgeted expenditures in the proposed financial plan are fully financed by projected revenues and grants and external financing, with no additional recourse to domestic financing.
Former President Bingu wa Mutharika saw aid, which typically accounted for 40 percent of the budget, dry up due to diplomatic friction made worse when his police killed 20 civilians in anti-government protests a year ago. This resulted in international condemnation and plunged him deeper into isolation.
Mutharika, who died in April of a heart attack, slashed last year’s budget but the austerity coincided with a severe drop in tobacco sales, which usually account for 60 percent of foreign currency reserves and significant tax revenue.
Petrol, drugs and other items purchased abroad with hard cash grew scarce, with people lining up for days for a few litres of gasoline. Goods for the domestic market were sold over the border to earn foreign currency while inflation jumped and growth subsided.
Banda has improved human rights and reached out to donors, including Britain and the United States who froze multi-year aid packages worth a combined nearly $1 billion, to restore the flow of cash that helped prop up the $5.6 billion economy.