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Executive Summary
The authorities have requested staff monitoring of their macroeconomic program
for the 2004/05 fiscal year (July-June) with a view to establishing a performance
track record that could lead to a new Poverty Reduction and Growth Facility
(PRGF) arrangement. The main objectives of the SMP will only be achieved if the
approved 2004/05 (July-June) budget is in line with the agreed budget framework and the
monetary overhang is addressed.
Fiscal slippages during March - June 2004 rendered the PRGF arrangement, which
would expire in December 2004, irretrievably off-track.
Dr. Bingu wa Mutharika was elected president on May 20, 2004. In his inauguration
speech, he underscored his strong commitment to macroeconomic stability and has
already implemented several cost-saving measures. He also initiated anti-corruption
measures.
The new government has proposed a budget framework for FY2004/05 (July-June)
that would sharply reduce domestic borrowing. Primary current spending in noncore
areas would be reduced in real terms, the travel budget would be cut by 25 percent, and
unbudgeted spending through the special activities vote will be stopped.
The budget framework accommodates additional spending in four key areas: food
security, civil service wage reform, arrears, and restructuring of the Agricultural
Development & Marketing Corporation (ADMARC). These initiatives will add about
2ј percent of GDP to current expenditures. Spending targets in other areas are tight, but
appear realistic and achievable.
Fiscal slippage is a significant risk to the program. The government’s ability to
contain spending has deteriorated in recent years and will take some time to reestablish.
Cabinet has approved the budget framework, but parliamentary passage is not assured.
Monetary policy seeks to bring inflation back into the neighborhood of 10 percent
by end-2005. To meet this objective, the Reserve Bank of Malawi (RBM) will need to
contain broad money growth and mop up the liquidity overhang through open market
operations and selling foreign exchange once donor inflows restart.
Structural measures under the SMP will focus on public expenditure management.
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- 402Kb ~ 2 min (52 pages)
