VZCZCXRO8672
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0181/01 0931021
ZNR UUUUU ZZH
R 031021Z APR 09
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 0415
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0332
RUEATRS/DEPT OF TREASURY WASH DC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

UNCLAS SECTION 01 OF 02 LILONGWE 000181 
 
SIPDIS 
 
LONDON FOR AF WATCHER PETER LORD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD MI
SUBJECT: MALAWI: IMF FORGIVES OVERSPENDING, HIGHLIGHTS STRONG 
GROWTH 
 
REF:  A. 08 LILONGWE 700 
  ¶B. LILONGWE 78 
      ¶C. LILONGWE 152 
 
LILONGWE 00000181  001.2 OF 002 
 
 
¶1. SUMMARY:  A just-concluded IMF mission to Malawi found that the 
GOM had sufficiently met Fund benchmarks to justify continuation of 
the one-year ESF agreement extended in late 2008.  The IMF team and 
the GOM compromised on how to account for overspending on the 2008 
fertilizer subsidy program.  While noting further slippage on 
targets for government domestic debt, the IMF team estimated that 
GDP growth in 2008 reached an impressive 9.7 percent, on the 
strength of a record tobacco harvest, a good maize crop and growth 
in other sectors, especially telecommunications.  With the 2009 
maize and tobacco harvests looking good, and uranium production due 
to begin this year, the IMF is predicting 7 percent growth in 2009. 
End Summary. 
 
IMF Review Team Satisfied with Malawi's Progress 
--------------------------------------------- --- 
 
¶2. An IMF review team concluded a two-week mission to Malawi on 
March 31 by giving the GOM a passing grade and approving the 
continuation of the USD 77 million Exogenous Shock Facility (ESF) 
extended in December of 2008 (Ref. A).  In a briefing for the donor 
community, the team reported that it had found a number of positive 
aspects to Malawi's economy and  had reached satisfactory compromise 
agreements on the few issues of most concern. 
 
Fertilizer Subsidy Overrun to Appear on Current Budget 
--------------------------------------------- --------- 
 
¶3. An agreement on the handling of the large budget overrun for the 
2008-09 fertilizer subsidy program (Ref. B) was the most noteworthy 
outcome from the mission.  After extensive discussions the IMF team 
was able to reach a compromise agreement with the GOM that will see 
the program overrun reflected in the current year budget.  Roughly 
80 thousand metric tons of fertilizer purchased for this year's 
subsidy program was not used.  The Smallholder Farmer Fertilizer 
Revolving Fund of Malawi (SFFRM), the semi-independent parastatal 
responsible for sourcing and supplying the fertilizer, will be 
required to carry the market value cost of the unused fertilizer, 
with funding from private banks.  The  GOM will absorb the higher 
cost at which the fertilizer was initially imported.  The GOM will 
also commit to purchase these stocks to supply part of the 2009-10 
subsidy program.  This plan will allow the GOM to have a significant 
portion of the full costs of the program carried off its books. 
 
Borrowing, ForEx Remain Concerns 
-------------------------------- 
 
¶4. One target that the GOM has consistently missed is its level of 
domestic borrowing.  In view of the fact that this rate has been 
reduced by almost 50 percent from earlier this decade, however, and 
given the context of the global economic downturn, the IMF was 
satisfied with GOM efforts to limit borrowing.  The 2009-10 budget 
will include some minor reduction in this debt level. 
 
¶5. Extensive IMF-GOM discussions on the macroeconomic framework 
underlying the 2009-10 budget focused on the need to support 
sustained growth while at the same time reducing domestic debt and 
increasing Malawi's foreign exchange reserves.  Official reserves 
remain at about one month's import cover.  Increasing this level is 
a key concern for the IMF. 
 
Robust Growth Highlights Economy's Strengths 
-------------------------------------------- 
 
¶6. Malawi's recent overall economic performance received high marks 
from the IMF.  The Fund recognized that Malawi is in an election 
year and expressed satisfaction with the degree to which (apart from 
the fertilizer) the GOM has maintained fiscal discipline.  The team 
estimated that GDP growth in 2008 reached a very impressive 9.7 
percent, on the strength of a record tobacco harvest, a good maize 
crop and growth in other sectors, especially telecommunications. 
With estimates of the 2009 tobacco harvest very good, and with 
uranium production at the Kayelekera mine due to begin in 2009, the 
IMF is predicting that Malawi will enjoy lower, but still robust 
growth at 7 percent in 2009.  Although this forecast carries some 
downside risk from the global economic slowdown, largely due to 
uncertainty over global demand for tobacco (Ref. C), Malawi is still 
likely to see some of the strongest growth in the world in 2009. 
 
IMF Open to Further Support 
--------------------------- 
 
¶7. The IMF is not currently discussing a follow-on program to the 
current one-year ESF.  The team indicated, however, that the Fund 
 
LILONGWE 00000181  002 OF 002 
 
 
would be open to such a discussion at the GOM's request starting 
with its next scheduled review mission in September.  Any new 
program would likely be a more traditional, three-year, PRGF 
program, since the ESF is designed to address short term shocks. 
 
Comment 
------- 
 
¶8. The basic message coming from the IMF seemed to be that the 
economic/fiscal situation in Malawi is not ideal, but it could be 
much worse.  The news on growth figures for 2008 and 2009 is in fact 
remarkably good, and makes Malawi something of a star performer in 
the current global environment.  Absorbing the excess cost of the 
2008-09 fertilizer subsidy program will be painful, but will 
hopefully not carry beyond this year.  With foreign exchange 
beginning to flow in from the current tobacco season, Malawi can now 
say with come confidence that it has weathered the storm, at least 
for now. 
 
SULLIVAN