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Malawi: Fourth and Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waivers of Nonobservance of Performance Criteria Informational Annex

Author(s):
International Monetary Fund
Published Date:
January 2008
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I—Relations with the Fund

(As of October 31, 2007)

I. Membership Status: Joined 07/19/1965; Article VIII (December 7, 1995)

II. General Resources Account:

SDR millionPercent Quota
Quota69.40100.0
Fund holdings of currency67.1096.69
Reserve position in Fund2.313.34

III. SDR Department:

SDR millionPercent Allocation
Net cumulative allocation10.98100.0
Holdings0.181.64

IV. Outstanding Purchases and Loans:

SDR millionPercent Quota
PRGF arrangements19.6228.27

V. Financial Arrangements:

ApprovalExpirationAmount ApprovedAmount Drawn
TypeDateDate(SDR million)(SDR million)
PRGF8/5/20058/4/200838.1721.95
PRGF12/21/200012/20/200445.1112.88
PRGF10/18/199512/16/199950.9650.96

VI. Projected Obligations to Fund1 (millions of SDRs; based on existing use of resources and present SDR holdings):

Forthcoming
20072008200920102011
Principal0.49
Charges/Interest0.160.520.520.520.52
Total0.160.520.520.521.01

VII. Implementation of HIPC Initiative:

A. Commitment of HIPC assistanceEnhanced

Framework
Decision point date12/21/00
Assistance committed (NPV terms) 2/
Total assistance (US$ million)1,057.00
Of which: Fund assistance (SDR million)45.27
Completion point date9/1/06
B. Delivery of Fund assistance (SDR million)
Amount disbursed33.37
Interim assistance11.57
Completion point balance21.80
Additional disbursement of interest income 3/3.82
Total disbursements37.19

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

I.MDRI-eligible debt (SDR Million) 4/37.87
Financed by: MDRI Trust14.53
Remaining HIPC resources23.34
II.Debt Relief by Facility (SDR Million)
Eligible Debt
Delivery DateGRAPRGFTotal
September 200610.8419.1229.96
December 2006N/A7.917.91

IX. Safeguards Assessments:

A safeguards update of the Reserve Bank of Malawi (RBM) completed in January 2006 under the PRGF arrangement, approved on August 5, 2005, followed up on RBM assessments completed in 2001 and 2003. The 2006 assessment found that although the RBM had taken steps to strengthen its operations, new vulnerabilities had emerged in governance and financial reporting. Recommendations to mitigate the identified weaknesses included: (i) reconstitution of the RBM board of directors, which was dissolved in August 2005, and the subsequent reestablishment of an audit committee; (ii) expansion of explanatory notes in the financial statements to include advances to the government and a letter of credit financial commitments; and (iii) strengthening of the central bank law provisions on the appointment and dismissal of board members.

X. Exchange Arrangements:

The exchange rate of the Malawi kwacha is a currently classified as a managed float. However, in view of the exchange rate’s stability since mid-2006, this classification is under review. On October 31, 2007, the exchange rate was MK 139.79 = US$1.00.

XI. Article IV Consultation:

Malawi is on a 24-month Article IV consultation cycle. The last Article IV consultation (CR No. 07/147) was concluded by the Executive Board on March 14, 2007.

XII. Technical Assistance:

DateDurationDept.RecipientPurposeForm
9/011 ½ weeksFADMinistry of FinanceExpenditure tracking and fiscal ROSCMission
11/012 weeksMAERBMMonetary operations and further developing financial marketsMission
02/022 weeksFADMinistry of FinanceExpenditure policyMission
05/026 monthsFADMinistry of FinanceExpenditure managementAdvisor
07/022 weeksSTANational Statistical Office (NSO), RBMGDDS Anglophone project on national accounts statisticsMission
08/022 weeksSTARBMMonetary and financial statisticsMission
02/032 weeksMAERBMMonetary operations, payments system, banking supervisionMission
08/032 weeksSTANSOGDDS Anglophone project on balance of payments statisticsMission
09/032 weeksSTANSO, Ministry of Finance, RBMROSC on the quality of macroeconomic dataMission
02/042 weeksMFDRBMMonetary operations, credit quality assessment, payments system, banking supervisionMission
04/042 weeksSTARBMMonetary and financial statisticsMission
01/052 weeksLEG/MFDRBMAML/CFTMission
03/052 weeksFADMinistry of FinanceTax Policy MissionMission
08/051 weekSTAMinistry of FinanceGDDS project on fiscal sectorMission
11/051 weekFADMinistry of FinanceCivil service pensionsMission
12/052 weeksMFDRBMMonetary operations, banking supervision, payments systems, and forex bureausMission
02/061 weekFADMinistry of FinanceCivil service pensionsMission
03/061 weekFADMinistry of FinancePSIA on the Fertilizer SchemeMission
05/061 weekFADMinistry of FinanceTax regime for miningMission
05/062 weeksMFDRBMLiquidity ForecastingMission
07/062 weeksMFDRBMPayments SystemMission
07/063 weeksSTARBMBalance of PaymentsMission
10/061 weekFADMinistry of FinancePublic Financial ManagementMission
10/063 weeksMCMRBMCurrency IssuesMission
11/062 weeksMCMRBMLiquidity ForecastingMission
11/062 weeksMCMRBMCentral Bank AccountingMission
11/062 weeksMCMRBMBank SupervisionMission
02/072 weeksFADMinistry of FinanceBudget process and improving budget preparationMission
03/072 weeksFADMalawi Revenue Administration (MRA)Revenue administrationMission
03/072 weeksMCMRBMForeign exchange bureausMission
03/072 weeksSTANSONational accounts and CPI statisticsMission
04/072 weeksSTARBMBoP statisticsMission
07/072 weeksMCMRBMFSAPMission
09/072 weeksSTANSO, Ministry of Finance, RBMDFID: STE Phase II, GDDS DisseminationMission

XIII. Resident Representative:

Mr. A. Maitland MacFarlan, who replaced Mr. Baunsgaard, started his assignment on August 21, 2007.

II—Relations with the World Bank Group

Contact person: Ms. Yisgedullish Amde, Tel. 202 473 2203/258–2148-2340

A. World Bank Country Assistance Strategy (CAS)

1. The fourth Malawi CAS was discussed by the Bank’s Board on February 13, 2007. The CAS (Report No. 38326-MW) outlines a program of assistance covering FY07–10 in support to the implementation of the government’s PRSP, the Malawi Growth and Development Strategy (MGDS).

2. This CAS contains four outcomes: (i) improve smallholder agricultural productivity and integration into agro-processing; (ii) put in place a foundation for long-term economic growth through improved infrastructure and investment climate; (iii) decrease vulnerability at the household level to HIV/AIDS and malnutrition, and (iv) sustain improvements in expenditure management, budget execution, and the accountability of civil service.

3. Six on-going projects (Irrigation and Rural Livelihoods Project, Community-Based Rural Land Project, Privatization and Utilities Restructuring Project, Rural Infrastructure Service Project, National Water Development II Project, and the Poverty Reduction Support Credit (PRSC)) support the first outcome, with three others in the pipeline (Agriculture and Food Security Program, Food Security/ Rural Development Credit, and Lake Malawi Watershed Management GEF) during the CAS period. To support the second outcome, Seven ongoing projects (Regional Trade Facilitation Project, Privatization and Utilities Restructuring Project, Infrastructure Services Project, National Water Development II Project, Business Environment Strengthening Project, the Mozambique-Malawi Transmission Interconnection Project, and the PRSC) are being implemented as well as those planned during the CAS period (Infrastructure Investment project, Regional Communications Infrastructure Program); WBI, IFC and MIGA, the Bank’s other agencies will also be actively engaged to support this outcome.

4. The third CAS outcome is being supported by six ongoing projects (Multi-Sector AIDS Program, MASAF, Health Sector Support and Malaria Booster Program, Education Sector Support Program, Irrigation and Rural Livelihoods Development Project, and the PRSC) with three projects (HIV/AIDS Project, Agriculture and Food Security Program, and Education SWAp) in the pipeline. Bank interventions to support the fourth outcome include the ongoing Financial Management and Transparency Project, the Privatization and Utilities Restructuring Project, and the planned Public Sector Project. In addition, all ongoing operations support the strengthening of line ministries and public accountability, thus contributing to the fourth pillar. Finally, the various analytical work being carried out by the Bank support, and contribute to the achievement of all CAS outcomes.

B. Financial Relations with the World Bank Group

5. The World Bank has been active in Malawi since 1966. Total lending and grants to Malawi from the World Bank as of October 2007 is US$2,637 million, of which US$2,375 million has been disbursed. As of June 2007, there were 15 active projects in Malawi with a net commitment of US$461.6 million and an undisbursed balance of US$224.2 million. Sectoral breakdown is as follows: social sectors at 39 percent; agriculture at 17 percent; infrastructure at 23 percent; private sector at 15 percent, and public sector at 6 percent.

6. Malawi became a World Bank Institute (WBI) focus country in FY07. WBI is concentrating on fostering reforms in the judicial and legal system (e.g., commercial courts and specialized court proceedings for corruption cases). It is also supporting development of a coherent social protection strategy, and creating capacity for policy formulation and institutional frameworks.

7. The International Finance Corporation (IFC) continues its strategy to increase its engagement in Malawi. During FY07, IFC committed $15 million in Celtel Malawi as part of a multi-country facility. In addition a further $3 million has been committed this year in NBS Bank under the MSME programme. IFC is currently working on various projects in the agribusiness sector and continues to look for opportunities in manufacturing, mining and tourism, the target sectors to reduce Malawi’s dependence on agriculture.

8. The Multilateral Investment Guarantee Agency (MIGA) is currently underwriting its first project in Malawi, in support of the services sector. The anticipated gross exposure from this investment is $5 million. As part of a joint engagement with the Foreign Investment Advisory Service (FIAS), MIGA was asked by the World Bank Group to advise Government of Malawi on restructuring its economic development institutions. A technical assistance team visited the country in early 2007 and is currently working with Government on follow-up.

C. Areas in Which the Bank Leads

Education and HIV/AIDS

9. The Multi-Sectoral AIDS Project (US$35 million in grants) was approved in FY04. The project supports efforts by the Government of Malawi to reduce HIV transmission and mitigate the impact of the disease throughout Malawian society. A major study of Malawi’s HIV/AIDS problem revealed 10 important constraints that the project is addressing through a range of activities, including capacity building in public, private, and civil society organizations; educational work for prevention; and increased support for AIDS orphans. Many of Malawi’s other development partners are also active in this effort, pooling their funds to support this critical effort. The Bank will play an enhanced role in supporting Malawi’s response to HIV/AIDS. Working closely with the Global Fund and other partners, the Bank will take on the secretariat for the pooled fund support to HIV/AIDS.

10. The Health Sector Support Project for Malawi (the first project with a sector-wide approach in Malawi), approved in December 2004, aims to improve the effectiveness, efficiency, and equity of Malawi’s essential health care delivery system. The project (with US$15 million in grants, and a supplementary malaria booster project of US$5 million to strengthen the Bank’s response to Malaria, approved in July 2006), has the following three components: Component 1. Increasing access to quality essential health services by making the already-defined Essential Health Package (EHP) accessible to all, especially to the poorest and most vulnerable populations. Component 2. Increasing the number of staff available through the continuation of the six-year emergency training plan, a concerted recruitment campaign, the financing and filling of current vacancies, the use of volunteers and contractual staff, and other stop-gap staffing strategies. Component 3. Improving the effectiveness and efficiency of both the health system and the referral network to support EHP delivery. The supplementary malaria booster project will focus on monitoring and evaluation.

11. The Education Sector Support Project for Malawi (with US$32.2 million in grants), approved in May 2005, provides immediate financing to support the education sector in Malawi. The project has the following six components: Component 1. Complementing government and donor efforts to improve quality and expand teacher development and training at all levels. Component 2. Improving the conditions of learning at selected secondary schools staffed with trained teachers. Component 3. Providing a school health and nutrition package to all primary schools. Component 4. Supplying basic learning materials directly to schools while strengthening the participation of communities in school management. Component 5. The project’s capacity building and policy development will cover: (i) national education policy consolidation and capacity building; and (ii) support for the implementation of the government’s decentralization policy in education. Component 6. Supporting the physical implementation and management of fiduciary and procurement issues.

12. Projects in the pipeline include an HIV/AIDS Project (pooled with other development partners), and an education SWAp.

Social Protection and Community Development

13. The Malawi Social Action Fund (MASAF) is a long-term, wide-ranging poverty-reduction project that supports decentralization and community capacity building. The project aims to empower individuals, households, communities, and their development partners in the implementation of measures that can assist them in better managing risks associated with health, education, sanitation, water, transportation, energy and food insecurity, and to provide support to critically vulnerable populations through a variety of sustainable interventions. The current project, MASAF III (US$60 million, of which US$27 million is in the form of an IDA grant) was approved in FY03. The project encourages communities to develop social safety nets for their most vulnerable members (such as skills training for AIDS orphans), facilitates delivery of the most needed social services, and stimulates communities to save and invest.

Infrastructure

14. The Integrated Infrastructure Services Project (US$40 million), which aims to improve household welfare and strengthen economic growth in market centers and surrounding rural areas through the provision of core infrastructure services, was approved on June 27, 2006.

15. In addition, the Second National Water Development Project (US$50 million) approved on May 24, 2007, aims to increase access to sustainable water supply and sanitation services for people living in cities, towns, market centers, and villages and to improve water resources management at the national level. The project will also contribute to building sector capacity through improved monitoring, regulation, incentive structures, public private partnerships, and coordination among the sector stakeholders.

16. The Mozambique-Malawi Transmission Interconnection Project was approved by the Board on 17 July, 2007. In addition, an infrastructure investment project (FY09), which will likely be pooled with other development partners, is also in the pipeline.

Private Sector

17. Parastatal reform continues to be an urgent need in Malawi. In the past few years, progress has been made with Bank assistance through the Privatization and Utility Reform Project (PURP, US$28.9 million, approved in FY00). PURP aims to improve the quality of and access to economic and physical infrastructure, especially telecommunications, water, and power, by promoting greater private sector involvement. PURP was restructured to address slow implementation issues, respond to new challenges facing the government, incorporate lessons learned, and improve the program’s effectiveness.

18. The recently approved Business Environment Strengthening Technical Assistance Project (US$15 million) aims to support acceleration of economic growth by reducing the cost of doing business, improving service delivery to the private sector and providing targeted support to small and medium enterprises.

19. Malawi also participates in the Regional Trade Facilitation Project, which principally aims to contribute to poverty alleviation through private sector-led growth in participating countries by improving access to financing for productive transactions and cross-border trade. The project brings together a group of countries by setting up a credible insurance mechanism against losses caused by political risks. The governments of these countries would agree to be the ultimate risk takers in the insurance mechanism, thus creating a strong disincentive to bring claims. The private market currently does not offer this type of insurance, particularly for medium-term transactions (over one year). The project will thus widen the scope for private sector activity by extending the maturities at which credit is available. It will also create a more stable business environment by extending consistent and predictable coverage. Finally, through better risk management, the project will lower the risk premium.

Agriculture

20. The Community-Based Rural Land Development Project (US$27 million) was approved by the Board in April 2004. Based on positive community level experience gained through the MASAF projects, and in partnership with the government and UK’s development agency, DFID, this project acquires idle estate land and transfers it to landless small farmers, thus enabling such farmers to feed their families and grow surpluses for commercial sale. There is an urgent need for Malawi to move toward a more equitable distribution of land that will provide food security for small farmers. The project target is to relocate 15,000 households.

21. The Irrigation, Rural Livelihoods, and Agriculture Project (US$40 million), approved in November 2005. This is a collaborative project with the International Fund for Agricultural Development (IFAD), which contributed $8 million, through a concessionary loan. The project aims to complement other agriculture sector support activities on the ground. The development objective of the proposed project is to raise the agricultural productivity and net incomes of about 196,550 poor rural households in 11 target districts by providing an integrated package of support, including rehabilitation of irrigation infrastructure, agricultural/ irrigation advisory services, marketing and post-harvest assets and services, and capacity building.

22. Given that the agriculture sector is key to development in Malawi, two pipeline projects are planned in the CAS; an Agriculture Sector/ Food Security SWAp, followed by a Rural Development Project.

Environment

23. Direct Bank involvement in the environment sector is currently limited to the Mulanje Mountain Biodiversity Conservation Project (US$6.75 million) which was approved in FY01. Of this, $5.5 million was used to capitalize an endowment fund meant to provide sustainable support to biodiversity conservation of Mulanje Mountain Forest Reserve. The project aims to raise awareness about conservation needs, strengthen the capacity of the Forest Department and of local communities to carry out conservation measures, and encourage more local community participation in managing the forest reserve. In addition, especially within the framework of MASAF, the project promotes environmentally sound community development initiatives and funds community resource management projects.

Poverty Monitoring

24. The Bank has provided support with the poverty monitoring tasks identified in the Poverty Reduction Strategy Paper (PRSP) as requiring technical assistance. Through the PRSP Trust Fund, the Bank assisted the government (and specifically, the National Statistical Office) in conducting the Second Integrated Household Survey, including design, collection, processing, and dissemination of data covering not only household characteristics, but also community level indicators. Following completion of the survey in 2005, the Poverty and Vulnerability Assessment, which provides in-depth analysis of the new household data, has been prepared in 2006 jointly by the Ministry of Economic Planning and Development, the National Statistical Office, and the World Bank.

D. Areas in Which the Bank and the Fund Share the Lead

Poverty Reduction Strategy

25. The Government of Malawi is in the second year of implementing its second generation PRSP, the Malawi Growth and Development Strategy (MGDS). A joint IDA-IMF staff advisory note (JSAN) was presented to the Boards of the IMF and the Bank in January 2007, and the Boards have subsequently endorsed the strategy. The first annual progress review of the MGDS is currently underway. The IMF and the Bank staffs maintain a collaborative relationship in supporting the government in the process.

Debt Sustainability and Enhanced Heavily Indebted Poor Country (HIPC) Initiative

26. Staff of the IMF and the Bank prepared “Malawi: Completion Point Document for the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative,” which was presented to the Boards of the World Bank and the IMF in August 2006. Malawi’s debt sustainability outlook after HIPC assistance deteriorated substantially since the decision point as a result of a fundamental change in Malawi’s economic circumstances due to exogenous factors. Therefore, the Boards approved the provision of topping-up assistance at the completion point, consistent with the guidelines under the enhanced HIPC Initiative. In addition, upon approval of the completion point under the enhanced HIPC Initiative, Malawi qualified for additional debt relief from IDA, the IMF, and the AfDF under the MDRI.

27. Following the HIPC Completion Point, the World Bank and IMF have continued to collaborate in assisting the Government of Malawi in the area of public debt management. Firstly, the Bank and Fund collaborated in the Global Debt Management Partnership (GDMP) to undertake more structured assessments in debt management capacity in low income countries. Under this initiative, a pilot of the Government Debt Management Performance Assessment (DeMPA) tool was undertaken, with the World Bank leading when it came to the assessment itself. Secondly, the Bank, Fund, and the Government of Malawi worked closely in preparing a chapter on Public Debt Sustainability and Debt Management Reforms as part of the Public Expenditure Review. Thirdly, the Bank, Fund and the Government also collaborated in identifying a reform program in the area of improved debt management that could be supported by the Bank’s PRSC. The main elements of the reform program are the cabinet approval of a Debt Management Policy and implementation of mechanisms for effective coordination between MoF and the RBM. Fourthly, the Bank and Fund are collaborating in supporting the Government’s debt management reforms within the context of the Lipsky-Daboub initiative. Under the Lipsky-Daboub initiative, the Band and Fund has been discussing with the Government and donors to identify support gaps within the Public Financial and Economic Management (PFEM) action plan. Lastly, a new LIC-DSA is being planned for March 2008 to be undertaken jointly between the Fund and the Bank, but with the Fund leading the exercise.

Budgetary Planning, Revenues Administration, and Public Expenditure Reforms

28. The Bank’s assistance in improving public expenditure management has been channeled through development policy lending, investment lending, and public expenditure reviews. In the area of public expenditure management, PRSC-1 has supported reforms for improving payroll management, timeliness and follow-up of external audit. Future PRSCs will also support reforms for improving the budget process.

29. The Financial Management, Transparency, and Accountability Project (FIMTAP, US$24 million, FY03) is also assisting the government with improving financial management systems and increasing transparency. The main objective of the project is to improve civil service and public expenditure management for better allocation and utilization of public resources.

30. The Bank plans to prepare another public sector management SWAp, which may focus on support to fiscal decentralization and service delivery.

31. The PER has just been finalized. It was conducted jointly with the Government of Malawi and focused on public debt issues, inter-sectoral analysis, and intra-sectoral expenditure issues in education, health, nutrition, and roads. A PER on the agriculture sector is underway and will be published separately.

Civil Service and Wage Reform

32. Following the World Bank-financed study on the review of civil service and wage policy issues, the government has begun implementing the recommendations of the study at the end of 2004, including streamlining the system of allowances, consolidating such allowances in the base for personal income tax, rationalizing salary grades, and moving towards a unified salary structure. These reforms are also supported under the IMF PRGF arrangement.

E. Areas in Which the Fund Leads

Macroeconomic Stability, Fiscal Policy, and Monetary Policy

33. Malawi has made noticeable progress in stabilizing the macroeconomy over the last three years. Improved fiscal discipline and prudent monetary policy have resulted in declining domestic debt, interest rates, and inflation. The challenge is for these gains to be consolidated. The Fund will work with the authorities in sustaining this progress, both through financial support and technical assistance.

III—Statistical Issues

1. Economic statistics are broadly adequate for surveillance, but serious deficiencies remain. The data module of the Report on the Observance of Standards and Codes (data ROSC), published February 17, 2005, found that, while the legal and institutional framework for the production of macroeconomic statistics was broadly adequate, there were shortcomings in the scope, accuracy, and reliability of data. There were also deficiencies in the scope for strengthening the Statistics Act to formally assign the responsibility for the compilation of government finance statistics to the Ministry of Finance, and responsibility for the compilation of monetary statistics to the Reserve Bank of Malawi.

2. The authorities are making efforts to improve the quality and timeliness of economic and financial data through participation in the Fund’s General Data Dissemination System (GDDS). As one of 22 countries participating in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone African Countries, Malawi has undertaken to use the GDDS as a framework for the development of their national statistical systems. The country is participating in the GDDS/PRSP and the monetary and financial statistics modules of the Anglophone Africa project (funded by the U.K. Department for International Development (DFID)). This project aims to assist participating countries in implementing plans for improvement identified in the metadata and meeting GDDS recommended statistical practices. The metadata have been posted on the Fund’s Dissemination Standards Bulletin Board (DSBB) since December 2002 and updated in February 2007.

A. Real Sector Statistics

3. Real sector statistics cover the national accounts, prices, and trade statistics and need to be substantially improved. Only a limited set of source data are available, and quality and timeliness should be improved. The National Statistics Office (NSO) needs additional resources to meet, in particular, the required quality standard of national accounts. A longterm technical assistance program (2004-07) on national accounts is being provided under a project by Statistics Norway.

National accounts

4. The NSO recently revised the national accounts methodology to implement the SNA93 and to better account for the activities in the informal sector. The new estimate of nominal GDP in 2006 was revised upward by some 40 percent. The revisions include a lower estimated output share of the agricultural sector, resulting in lower estimates of output growth for 2006 and 2007.

Prices

5. A consumer price index (CPI) is available on a timely basis. The CPI is based on the 1997/98 household survey, and data are collected on a monthly basis by regional price collectors. The authorities are in the process of revising the CPI weights using the 2004 Integrated Household Survey.

Trade

6. Preliminary estimates of trade are now available with a lag of two to three months. Trade data are received electronically from six major ports. The adjustment of imports from c.i.f. to f.o.b. prices is not appropriate and there is no reconciliation with data from neighboring countries.

B. Government Finance Statistics

7. Some fiscal data are reported on a cash basis to AFR. Although administrative records are kept on a manual basis, the systems are designed to provide adequate information. However, there are serious quality problems, including data inconsistencies, that complicate program monitoring:

  • While tax revenue data are received in a timely fashion, it is not always possible to reconcile them with deposits in the Malawi Government (MG) Account No. 1.
  • Nontax revenue collected by line ministries is not properly accounted for in the fiscal reports prepared by the Ministry of Finance. It also includes capital revenue.
  • Data on recurrent expenditure suffer from serious shortcomings partly related to insufficient bank reconciliation at the level of line ministries (between spending records and financing information). The fiscal reports prepared by the Ministry of Finance show spending based on funding data (from the Credit Ceiling Authority). Line ministries subsequently submit spending reports to the Ministry of Finance based on recorded expenditure. At times there are sizable discrepancies between these two sources of data for both wages and other recurrent transactions—to some extent reflecting the widespread practice of reallocation across budget lines.
  • Domestically financed development expenditure estimates are based on funding released to line ministries, and data on externally funded expenditure estimates are based on reported project grants and loans. Owing to differences in timing and financing modalities (e.g., some donors require prefinancing of expenditure before reimbursement), there are substantial differences between the flow of expenditure and corresponding financing data. Thus, there are substantial errors in the reporting of capital spending. In addition, many donor projects are still not incorporated in the budget, and hence the corresponding expenditure is not captured in government finance statistics. Some externally funded development expenditures are likely recurrent and, reported capital expenditure could be overstated.
  • Data on expenditure arrears are likely incomplete, as reporting from the Commitment Control System appears to be only partial, and ministry level data are not consistent from report to report. Previously unknown arrears have repeatedly been cleared through the “special activities” vote, thus calling into question the accuracy of arrears data and the data on clearances.
  • The budget classification and chart of accounts may be adequate for some administrative, economic, functional and program classifications. An output-oriented activities-based budget classification (ABB) is used for the presentation of the budget. However, pro-poor expenditures that have been protected in line with the PRSP are only identified in the ABB classification. As no bridge table exists to map the ABB classification into the program classification used for expenditure reporting and accounting, pro-poor expenditures cannot be monitored.
  • Financing estimates are based on monetary and debt data, rather than on government records of financing. Reporting on treasury bills directly issued to the RBM at times has been slow.

8. The authorities have received significant technical assistance from the Fund and other donors to strengthen expenditure monitoring and reporting, accounting, and statistical reporting, but results have lagged. The government has pledged to strengthen public financial management and fiscal reporting, and renewed efforts are being made to establish a work plan, including utilizing donor technical assistance more effectively.

9. Malawi does not report government finance data for publication in the Government Finance Statistics Yearbook (GFSY) or the International Financial Statistics (IFS). An August 2005 STA mission that visited Lilongwe and reiterated the importance of continued efforts to implement the Integrated Financial Management Information System (IFMIS), to improve the coverage and sectorization of government financial operations and to correctly classify transactions according to international guidelines. Although the mission assisted the authorities with the compilation of annual fiscal data for 2003/04 in accordance with the GFSY Questionnaire, such data were not reported for inclusion in the publication. The mission proposed, and discussed with the authorities, a migration plan and timetable to adopt the GFSM 2001 methodology.

C. Monetary and Financial Statistics

10. The Reserve Bank of Malawi (RBM) reports monetary and financial statistics (MFS) to STA on a regular basis. A mission in April-May 2004 noted that significant progress had been achieved in implementing previous technical assistance recommendations. Coverage of the monthly depository corporations survey now accounts for more than 90 percent of the deposit-taking financial institutions. On the other hand, the mission also noted that some important recommendations were yet to be implemented, such as the sectorization of the domestic economy, and classification of financial instruments to ensure that the RBM adheres fully to the methodology of the Monetary and Financial Statistics Manual.

11. Concurrently, the mission completed the development of an integrated database to be used by the RBM, STA, and AFR for publication and operational needs. The mission also discussed the standardized report forms (SRF) for reporting monetary data to STA. The authorities submitted the SRF test data; however, there has not been further progress after STA provided comments on these test data in October 2005. A mission, in the context of the GDDS project for Anglophone Africa, is scheduled for early 2008 to assist the authorities in implementing outstanding recommendations and in further developing the SRF.

D. External Sector Statistics

34. Concepts and definitions used to compile the balance of payments statistics are in broad conformity with the guidelines presented in the fourth edition of the Balance of Payments Manual (BPM4), although there has been some progress in the transition to the methodology of BPM5. Since the liberalization of exchange controls, the compilation of data relies on surveys as the source of information for major components in the balance of payments, such as services, direct investment flows, and other financial transactions of the private sector. Data from primary sources (surveys and/or International Transaction Reporting System reports) are supplemented with information from secondary data sources, such as foreign trade statistics collected by the MRA through customs declarations, debt statistics from the MOF, net foreign assets from the RBM, and information on grants collected from main donors. Following a number of technical assistance missions over the past four years, the compilers have introduced some new data sources and have revised several components of the balance of payments.

Malawi: Table of Common Indicators Required for Surveillance

(As of November 13, 2007)

Memo Items:
Date of Latest ObservationDate ReceivedFrequency of Data6Frequency of Reporting6Frequency of Publication6Data Quality – Methodological Soundness7Data Quality – Accuracy and Reliability8
Exchange Rates7/079/27/07DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities109/0710/31/07MMM
Reserve/Base Money09/0710/31/07MMMLO, LO, LO, LOLO, O, O, O, O
Broad Money09/0710/31/07MMM
Central Bank Balance Sheet09/0710/31/07MMM
Consolidated Balance Sheet of the Banking System09/0710/31/07MMM
Interest Rates29/0710/17/07MMM
Consumer Price Index09/0710/31/07MMMO, LO, O, OLO, LO, LNO, LO, LO
Revenue, Expenditure, Balance and Composition of Financing3 – General Government4NANANANANALO, LNO, LNO, LOLNO, O, LO, O, LO
Revenue, Expenditure, Balance and Composition of Financing3 – Central Government09/0710/31/07MMI
Stocks of Central Government and Central Government-Guaranteed Debt509/0710/31/07MMM
External Current Account Balance200604/07AQALO, LO, LNO, LOLNO, LNO, LO, LO, LO
Exports and Imports of Goods and Services200606/07AAA
GDP/GNP200606/07AAALO, LO, LNO, LOLNO, LNO, LNO, LO, LO
Gross External Debt12/0505/06MNANA

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC, published February 17, 2005, and based on the findings of the mission that took place September 1–16, 2003 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC, published February 17, 2005, and based on the findings of the mission that took place September 1–16, 2003 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

1When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears are shown in this section.
2Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.
3Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.
4The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

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