To: His Excellency the President of the Republic of Malawi - Dr Lazarus M.

Chakwera

Dated: 13th September 2022

OPEN LETTER:

REJECTION OF EXTENDED CREDIT FACILITY BY THE INTERNATIONAL MONERY FUND (IMF)

SHOULD BE TAKEN AS A SERIOUS MATTER OF CONCERN FOR MALAWI’S ECONOMIC AND
POLITICAL STABILITY

Your Excellency Mr President, may I personally greet you and the First Lady, as you embark
on an international trip attending to matters you define as significant for Malawi, in
various countries. It is indeed a great honour as I also seek your attention on matters of
significance that are affecting Malawi currently, our beloved shared-country of birth, by
God’s grace, and its future with regards to economic and political stability as defined by the
IMF actions recently.

Mr President, Malawi through the Ministry of Finance has had its application for a four-
year Extended Credit Facility (ECF) by the IMF rejected amid poor macroeconomic
performance and its leadership ability to deal with issues of Fiscal Governance broadly
speaking.

Mr President, if I may quote directly from the IMF on determination of access for an
Extended Credit Facility: “Access to ECF financing is determined on a case-by-case basis,
taking into account the country’s balance of payments need, the strength of its economic
program and capacity to repay the Fund, the amount of outstanding Fund credit and the
member’s record of past use of Fund credit, and is guided by access norms”.

Mr President, I would like to bring your attention once again to an updated economic
landscape of Malawi, based on my previous letter to you of 10th January 2022, to which
some of key parameters the IMF tracks, and at times forms the basis of their determination
to granting the credit facility as outlined above.

The Malawi economic performance based on latest available data is as follows:

1. The Gross Domestic Product (GDP) in Malawi was worth 12.63 billion USA dollars in
2021, according to official data from the World Bank. The GDP value of Malawi
represents 0.01% of the world economy. The economy of Malawi advanced by 3.8%
year-on-year in 2021, from 0.9% in the previous year, which was the softest pace of
growth since 2001. Although GDP growth rate figures have suggested being above
4% in recent years, with the exception of 2020, this remains on paper, as poverty
continues to engulf the majority of the Malawians, with growing inequality.
2. The Gross Domestic Product per capita in Malawi was last recorded at 394.18 USA
dollars in 2021. The GDP per Capita in Malawi is equivalent to 3% of the world's

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 average. The GDP per capita continues to decline, thus meaning less is being
produced in the Malawi economy per person to survive.
3. In a country with an estimated total population of 19.1 million people,
unemployment rate suggest an increase to 7%, the highest in a decade, thus
according to latest figures, to which at Malawian level, translates to massive poverty
for its people.
4. The high cost of living in Malawi are being reflected in the latest consumer inflation
data, that reflects annual inflation rate in Malawi rising to 24.6% in July of 2022, the
highest since December of 2015. Of key concern; is the rising cost of food, transport
and housing utilities cost at 32.5%, 128.4% and 113.6% respectively, that’s hitting on
the poor and middle-class. This means ordinary Malawians are being squeezed
financially to provide for their families on a daily basis and are becoming worse-off
as each year and month passes.
5. Although the interest rate environment is at relatively low levels of 14%, not many
ordinary Malawians have the ability to access the much needed business loans
through the traditional banks or Development Finances to support their dreams of
addressing their poverty situation.
6. With regard to Malawi trading position, the balance of trade reflects a worsening
deficit, with the country operating in a deficit for a decade. This translate to Malawi
not being able to accumulate enough foreign exchange revenue for the country
through international trade, as the country trade position is skewed towards
importing than exporting. This also translates to an economy not able to take
advantage of international trade arrangement such as AfCTA to generate the much
required revenue to support the development endeavours of its economy and the
people at large.
7. Malawi, therefore, is not able to rely on its own resources currently, hence continues
to borrow from the international markets and rely on donor support, with the IMF
and the World Bank remain imperative to its development programmes. Malawi
Government Debt to GDP is estimated at 51% of the country's Gross Domestic
Product. This debt has to be paid from what Malawians are producing eventually, no
matter how small the level of GDP per capita. The fiscal revenue, which is not
growing in line with expenditure, from the narrow sources of corporate and personal
income tax set at 30%, coupled with sales tax of 16.5% among others, is not enough,
sustain the growing Government appetite towards expenditure.
8. The level of Government spending demonstrates an increasing appetite to spend
recklessly, with monthly fiscal expenditure of MK267 billion just in April 2022 alone,
from revenue of MK140.7 billion. The question that still comes to mind is whether
this increase is productive spending or wasteful expenditure?
9. When it comes to Global Competitiveness, Malawi is still scoring below 50%, which
reflects a country lowest ranked when it comes to competing internationally for

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 investment. This means, the ability to attract the much needed productive fixed
investment into the economy on the massive scale is being eroded.
10. When it comes to Governance as reflected in the corruption index ranking, Malawi
remains a star performer, with global ranking of a high order. Malawi is the 110 least
corrupt nation out of 180 countries, with a latest score of 35 points out of 100 on the
2021 Corruption Perceptions Index reported by Transparency International. The
effectiveness and capacity to deal with alleged corruption cases and its alleged
selective approach to the justice system could also be a major determination for the
IMF decision.

Mr President, the above updated high-level and a glance on the Malawi economic
environment in a way puts Malawi where we are with regard to the IMF four-year
Extended Credit Facility. In brief, the Malawi story through the Ministry of Finance has not
convinced the global bankers that we can turn around the situation, and that the country
has the ability to repay its debt as stipulated in the determination of credit access criterion.

Mr President, I would like to bring to your attention of our neighbouring country, Zambia
which also has a newly elected President. International Monetary Fund (IMF) approved a
38-month arrangement under the Extended Credit Facility (ECF) in an amount equivalent
to SDR 978.2 million (around US$1.3 billion, or 100% of quota) recently. The program is
based on the Zambian Government indigenous economic reform plan that aims to restore
macroeconomic stability and foster higher, more resilient, and more inclusive growth as
quoted from the IMF press release of 31st August 2022.

Mr President, our neighbour Zambia had a convincing story to tell to the IMF. The
Zambian Government through its newly elected President put their story straight and
committed to restoring fiscal sustainability through sustained fiscal adjustment, focusing on
eliminating regressive fuel subsidies, enhancing the efficiency of the agricultural subsidy
program, and reducing inefficient public investment, as well as domestic revenue
mobilization and investing in its people through education, health among others.

Mr President, our neighbour’s story was not just in a speech but in action. The
strengthening of fiscal controls to dealing with wasteful expenditure was the key political
will and action of our neighbours’ Zambia, as well as addressing governance and corruption
vulnerabilities. Mr President, no matter how brilliant the words are in a speech, IMF looks at
your daily actions. The fiscal position and management of the resources before and after
becomes imperative.

Mr President, I would like to bring these key facts that require your urgent redress that no
development lender would be comfortable with:

 Malawi agriculture subsidy programme has demonstrated serious weaknesses and

challenges with no convincing solutions, maybe not a good story for the IMF.

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  Malawi fight against corruption seems to take an alleged politicised approach than a
pursuit of justice and rule of law, in which some of those alleged corrupt persons or
individuals continue to serve in high or key Government posts, maybe not a good
story for the IMF.
 Malawi fiscal expenditure surpassing its revenue, and elements of wasteful
expenditure and lack of controls in dealing with fiscal mismanagement in
Government and its agencies, maybe not a good story for the IMF.
 Malawi’s economic policy position and plans are well articulated through its several
policy positions and National Economic Development Plans, however, lack of a fast-
paced approach to implementation, maybe not a good story for the IMF.
 Malawi appetite to borrow for unproductive expenditure purposes, both externally
and domestically rising; with capacity to repay diminishing, as foreign exchange
potential to grow is being eroded, maybe not a good story for the IMF.
 Malawi inability to sustain a conducive monetary policy framework; amid rising
inflation rate, may not be a good story for the IMF.

Mr President, Malawi is a country blessed with water resources in the Lakes, rivers and
dams, arable land constituting atleast 90% of its geographical landscape, beautiful
landscapes of Chiweta hills, Nyika plateau, Mulanje mountain, the majestic landscapes of Ku
Chawe in Zomba, the Game reserves and National parks of among the best the World can
offer, unexploited mineral wealth and above all, its resilient people that have over the
years demonstrated the warm welcoming heart of African people, despite the poverty and
hardships they face. It is that which we must take advantage of to progress our beloved
country, Malawi.

Mr President, I would like to continue to remind you Sir, that as a leader of the nation of
Malawi, yours is also leaving a legacy behind. As a leader, the choices are the same two, bad
or good legacy. As a seasoned Economist and Malawi loving person, with relatives, friends
and colleagues across the country, I write to you in good faith, for I have trust in you that
as a man of God, the word redeem also dominates your daily vocabulary.

Mr President, redemption comes through true commitment towards action and not
words. The rejection by the IMF for an Extended Credit Facility (ECF) has got serious
implications for Malawi unless alternative solutions are on the table. The development
lending world, from which I spent 10 years of my career works on reference point, to which
the IMF is key. A rejection of ECF by the IMF sends wrong signals to all lenders, especially
when the reasons are publically known as stipulated in its determination of access
criterion.

In my last letter address to you on the 10th of January 2022, I did clearly state that “An
economy of the size and limited resources of Malawi cannot cushion the effects of

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massive corruption”. Mr President, we are now, 8-months later facing the consequences of
this mismanagement of fiscal posture of our economy.

Mr President, you have the baton of leading Malawi until 2025, with commitment to the
cause that brought your Government to power, even within 6-months of decisive action
and re-assessment of energy direction is enough to re-uplift the spirits of Malawians that
trusted your process towards a renewal of Malawi.

I, therefore, propose the following 5-straight action plan to your leadership of Government;
to win-back the confidence of international lenders such as the IMF:

1. A fast-paced and aligned economic policy implementation that is also based on

fiscal prudence approach.
2. A decisive action on issues of Governance and alleged corruption without fear or
alleged politicisation
3. A re-commitment to the constitution of Malawi and its people in defining your
Government development agenda that is broadly inclusive of all to reduce poverty
and inequality, as per IMF goals in its lending criterion.
4. De-politicisation of the key civil service appointment model with a merit based
approach guided by a performance based contract approach, taking a quarterly
review approach on Key Performance Indicators (KPIs) to ensure delivery.
5. Seek the support and input of broader constituency of stakeholders for action
based solutions on the economy of Malawi.

Mr President, the consequences of not having ECF support from IMF for Malawi has
serious economic and political stability implications for the country, for it may negatively
affect provision of health services, education, as well as overall macro-economic stability
among others.

As it is defined through the profession I love the most, which is of being a practising
Economist for 26 years, mine is in good-faith based approach that I offer the advice on the
economy of my beloved country, Malawi; based on reliable data and facts, as sourced from
various credible institutions. I remain committed to my country Malawi.

Once again, God bless you, Your Excellency the President Dr Lazarus Chakwera and your
entire Government, as we seek long-term solutions for our beloved country.

Yours Sincerely

Mr Chifipa “Chifi” Mhango

A Concerned Chief Economist, Johannesburg, South Africa

Cc: Dr Saulos Chilima, the Vice President of the Republic of Malawi

Cc: Media Houses in Malawi

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