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IMF tells Malawi to cut spending, devalue currency

By on March 31, 2012
Ngwazi-Bingu-wa-Mutharika. Malawi

The International Monetary Fund (IMF) said on Saturday that Malawi, which has seen donor aid dry up and revenue shrink, should cut spending and reiterated its call for the devaluation of the kwacha currency.

A mission from the fund has been taking stock of the southern African country’s public finances, which are in dire straits as Britain and the United States have frozen aid packages worth hundreds of millions of dollars over concerns about the human rights record of President Bingu wa Mutharika.

“With the uncertain outlook for government revenues and mounting pressures for wage increases, the mission urges the authorities … to begin to identify Lower priority expenditures that could be cut,” IMF Mission Chief for Malawi Tsidi Tsikata told reporters.

“Government will have to devalue the local currency because the official exchange rate is failing to anchor inflation expectations as a growing share of imports is being priced at the significantly depreciated parallel exchange rate,” he added.

The collapse in donor funding, which accounts for 40 percent of the budget, has put pressure on the kwacha, forcing a 10 percent devaluation last year to 166 to the dollar although it remains well shy of a black market rate of close to 300.

Malawi’s inflation rate has climbed into double digits with the February inflation pegged at 10.8 percent up from 10.3 percent in January.

Land-locked Malawi is one of the world’s poorest countries and its economy is heavily dependent on agriculture, much of it subsistence.


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