Washington, DC: The Executive Board of the International Monetary Fund (IMF) has reviewed noncomplying disbursements by Malawi of SDR11.15 million (about US$15.4 million) and SDR31.55 million (about US$43.3 million), following the completion of the first, and combined second and third, reviews of its three-year Extended Credit Facility (ECF) arrangement, approved on April 30, 2018. [1] Malawi misreported on its observance of the performance criteria on the floor on the Net International Reserves (NIR) of the Reserve Bank of Malawi (RBM), leading to the noncomplying disbursements.
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: (i) pledged term deposits, and (ii) assets through contracting short-term swaps, whereas the Technical Memorandum of Understanding (TMU) definition of the gross reserves assets explicitly excluded both.
The authorities have undertaken several corrective measures to remedy the situation and strengthen the RBM’s reserve management. The authorities dismissed the former Governor of the RBM from office in July 2020; completed in mid-June 2022 a special audit of RBM’s foreign exchange reserves for the first three reviews under the 2018 ECF arrangement and confirmed the noncomplying disbursements; published restated financial statements for FY2018-19 and FY2019-20 in accordance with the 2021 Safeguards Assessment conducted by the IMF; and improved data reporting to the Fund. In addition, the authorities have embarked on large macroeconomic adjustment and structural reforms to rebuild gross official reserves. [2]
At the conclusion of the meeting, Deputy Managing Director Bo Li stated:
The IMF Executive Board reviewed Malawi’s remedial actions linked to noncomplying disbursements under the 2018 Extended Credit Facility (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.
[1] The ECF arrangement was approved on April 30, 2018 for a total amount equivalent to SDR 78.075 million (about US$112.3 million) to support Malawi reform agenda (see Press Release No. 18/157). Under the combined second and third review, Malawi requested an augmentation of access of SDR27.76 million (about US$33 million) to help address additional balance of payments needs associated with reconstruction following Cyclone Idai (see Press Release No. 19/432).