VZCZCXRO2057
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0778/01 2901416
ZNR UUUUU ZZH
R 171416Z OCT 07
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 4717
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLMC/MCC WASHDC

UNCLAS SECTION 01 OF 02 LILONGWE 000778 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID MI
SUBJECT: IMF GIVES MALAWI ECONOMY A THUMBS UP 
 
 
LILONGWE 00000778  001.2 OF 002 
 
 
¶1.  Summary.  In an October 9 briefing to Heads of Mission, 
the IMF presented a solidly favorable view of the GOM's 
economic performance and the outlook for the next year.  The 
meeting highlighted strong economic indicators virtually 
across the board, with only a couple weak areas.  The review 
under Malawi's Poverty Reduction and Growth Facility (PRGF) 
provided the GOM with a passing grade, allowing continuation 
of the program.  End summary. 
 
¶2. Andy Berg, Chief of the IMF's PRGF Mission to Malawi, 
briefed Heads of Mission on the results of the recent IMF 
visit October 9.  Charge' attended along with HOMs from 
Germany, Norway, UK, DFID, JICA, UNDP and the World Bank. 
The Minister of Finance and a number of officials from his 
ministry were also present from the GOM.  Overall, Berg 
provided a very positive report, indicating that the IMF and 
GOM had reached agreement ad referendum on a set of policies 
that would allow conclusion of the 4th review of progress 
under Malawi's PRGF.  He predicted that the IMF board would 
bless the agreement before the end of the year. 
 
THE GOOD NEWS 
------------- 
 
¶3. Berg's discussion of Malawi's economic indicators was a 
litany of good news, with only a couple of weak spots of no 
special concern.  On GDP growth, the GOM will be revising its 
estimate for the current year ('07) upward to 7.5 percent, 
based on strong performance in the agricultural sector - 
particularly maize - and related sectors.  Berg said that the 
IMF is also predicting strong growth in '08 of around 7 
percent, up from earlier estimates of 6 percent.  The IMF was 
also impressed with the trends in domestic investment. 
Investors had told IMF representatives that because "three 
years of growth and stability are even better than two" for 
building investor confidence.  Finance Minister Gondwe added 
that he hoped to add a fourth year to the total. 
 
¶4. Inflation, currently at 7.2 percent is trending down 
toward 7 percent.  Although fuel prices may cause a brief 
spike, the tendency is clearly down.  The government debt 
burden has declined from 14.4 percent of GDP in 2006 to 12.4 
this year.  Foreign exchange reserves have held steady at 180 
million USD, despite some pressure resulting from delays in 
(donor) budget support.  With a resumption in budget support, 
the IMF expects modest accumulation/strengthening in the 
fourth quarter. 
 
¶5. Malawi's current monetary policy is not entirely clear, 
but the IMF says that the Reserve Bank of Malawi is pursuing 
a medium-term inflation target of 5-7 percent, allowing for 
some short-term shocks.  The IMF approves of this strategy, 
and although the money supply has grown somewhat faster than 
agreed, the IMF is not concerned that this will spark an 
increase in inflation.  The IMF was also not worried about 
the GOM missing its spending target by 1 percent, noting that 
the small fiscal overshooting has been offset by "buoyant 
revenues." 
 
¶6. In response to a question from the UNDP, Berg noted that 
there appeared to be more resilience in the budget this year 
than in past years to overcome potential shocks such as bad 
weather or crop failure.  Minister Gondwe agreed, noting that 
"we will be better prepared for shocks than we have been in 
previous years" due to a stronger fiscal position, healthier 
reserves and more stored grain from this year's good harvest. 
 
GRADUATION FROM PRGF? 
--------------------- 
 
¶7. Buoyed by Malawi's recent economic performance, Gondwe 
told local media that the country may no longer need the PRGF 
and the external disciplines it entails.  Following the IMF 
visit the Minister publicly suggested that Malawi may instead 
seek to enter the IMF's Policy Support Instrument (PSI) 
program after the current PRGF expires in the third quarter 
of 2008.  The Minister told the press "We still have almost a 
year before we have another program but we now could go into 
Policy Support Instruments.  As a country this means that we 
are now big boys and we should concentrate on managing our 
affairs." 
 
COMMENT:  IF THE WEATHER HOLDS 
------------------------------ 
 
¶8. Malawi's current outlook is nearly as positive as could be 
hoped for.  The Mutharika administration's attention to sound 
economic fundamentals has brought noteworthy results. 
Despite the good news, Malawi's economy is still overly 
dependent on the agricultural harvest.  A serious crop 
failure could easily negate the rosy predictions for next 
year, despite the increased reserve stocks.  Indeed, the 
 
LILONGWE 00000778  002.2 OF 002 
 
 
modest volumes of grain being offered on the market gives 
some reason to question whether government reserves are truly 
as full as claimed.  Still, the past year did see record 
maize harvests, so the country is clearly in a better 
position than in some years past. 
SULLIVAN