Congratulations to the government and people of Malawi for receiving approval by the International Monetary Fund (IMF) yesterday for an Extended Credit Facility (ECF) program that will help revive Malawi’s economy. We applaud the important leadership by President Chakwera and senior government officials over almost two years, and the tough, necessary reforms, including adjusting the exchange rate, that helped achieve the ECF.
The ECF is one step on the journey toward Malawi’s economic recovery. It is not the end goal. While difficult but important reforms have already begun, these measures must continue in full force to catalyze the domestic investments and attract the foreign investments needed to grow and diversify the economy.
It is important to emphasize what the ECF is and is not. Ultimately, the ECF is dedicated to improving the macroeconomic stability and potential of Malawi to expand private sector led growth, trade and investment, and job growth. That is the opportunity it creates. In his speech last night, President Chakwera acknowledged that the “cornerstone of a strong economy is a strong private sector.” Foreign direct investment is key. Ultimately Malawi will grow to become a prosperous country and realize its 2063 goals through trade, not aid.
Foreign aid by partners will continue and will play a supportive role, but it is trade and investment that will create jobs and lift Malawians out of poverty. Aid is a short-term bandage. It is not the long-term solution. Attracting investments is about creating the right enabling environment for private sector companies – Malawian and foreign – to grow the economy and create jobs. Every country around the world that has moved to prosperity has done so through trade and investment. Growing the economy is the key.
The United States continues to be a steady partner to Malawi. We pushed hard in partnership to achieve an ECF, and we will continue to support the work necessary for Malawi’s economic recovery through many initiatives. A principal goal of our work is to help bring the private sector to the table to invest and increase production in Malawi. This will create jobs and generate exports and foreign exchange earnings. The African Growth and Opportunity Act, or AGOA, is a key pillar to realizing our vision for shared prosperity. We want to work with Malawian companies and the government to take fuller advantage of this opportunity.
We are also supporting the Government of Malawi’s Agriculture, Tourism, and Mining (ATM) Strategy. Importantly, to support agricultural diversification and increased exports, we began last month a new $40 million USAID project to work with anchor firms to expand centers of economic opportunity (called “Growth Poles”) for smallholder farmers, youth, and women. This promises to help approximately 500,000 Malawians to increase and diversify their income sources. Through the Millennium Challenge Corporation (MCC), we are investing $350 million to reduce transport costs, to connect farms to markets, and to strengthen land administration in Malawi. MCC’s Malawi Transport and Land Compact will improve rural access to markets and reduce transportation costs by investing in upgrades and improvements across different classes of roads within four selected corridors—totaling more than 300 kilometers. On tourism, in conjunction with African Parks and the Lilongwe Wildlife Center, we fund the development of a tourism plan, an educational center, and educational materials for two significant tourism attractions in Malawi. For the mining sector, we are working to support Malawi to develop its natural resources in a manner that ensures the people of Malawi benefit. From scientific collaboration with our U.S. Geological Survey to U.S. government financing for project development to identifying potential off-take partners, U.S. support can help make Malawi’s mining sector an engine for economic growth. Mining revenue will be key to boosting exports and foreign exchange reserves.
U.S. support did not end after Cashgate, and it continues today and will continue into the future. The United States is Malawi’s largest bilateral partner with more than $350 million in investments every year, and our work together helps save lives and change lives for good. From the Millenium Challenge Compact to USAID funding to CDC health assistance, we are making dramatic differences in the lives of Malawians. The United States is the largest contributor to the World Bank, and of the World Bank IDA financing and contributions discussed yesterday, the largest single share was provided by U.S. taxpayers.
President Chakwera also spoke last night about some very important but uncomfortable truths. As painful as it is, the devaluation of the kwacha was an essential step for Malawi’s economic recovery. Some investors had chosen not to come to Malawi – or had indeed moved to other countries to pursue opportunities – because of the dysfunctions of the severely misaligned currency. The misalignment was not just deterring investment and making exporters uncompetitive, but also incentivizing smuggling and contributing to all the shortages we’ve been experiencing of fuel, pharmaceuticals, fertilizer, etc. Foreign investments and trade do not flow when a currency is as misaligned as the kwacha was. Therefore, it will be equally important that the announced exchange rate policy reforms are implemented.
We empathize with the economic pain that many Malawians are experiencing at this difficult time, and the United States and other international partners will continue to act in solidarity to help support the poor and the food insecure citizens affected by the economic crisis. We will continue to work with Malawians to address the five million food insecure people. Our solidarity continues. There must be support for the poor, the vulnerable, and small and medium-sized enterprises to help cushion the effects of the painful corrections that are needed to help the economy recover.
With the important step forward of an ECF, the government of Malawi and indeed all Malawians must work hard to take advantage of this new opportunity. While difficult but important reforms have begun, these measures must continue in full force to attract the investments needed to grow and diversify the economy. Malawi must follow through on its commitments and policy reforms to benefit from this opportunity.
As President Chakwera said, the government cannot waste this opportunity by spending unnecessarily or frivolously. Budget discipline is needed, and so is accountability. Daily subsistence allowances associated with conferences and trips not only keep civil servants away from their duties but become ends in themselves. They are wasteful, and DSAs must be curtailed. We applaud the focus on addressing this issue head on by closely scrutinizing trips and conferences, and we hope that the government will go further to address this issue, which takes away much needed funds that could help cushion the poorest Malawians.
In order to attract expanded private sector growth and thus more jobs, Malawi should enact policies to encourage increased investment and trade. Also, it is important that legislation should work to encourage private sector led growth and not deter it. The draft crops bill in particular should be looked at carefully to make sure it enhances private sector investment and trade. Fundamentally the intent of legislation must not be to control the private sector, but to empower and encourage it. That is the path to prosperity. Indeed, a fresh look at all proposed economic legislation in light of the ECF would be useful. Otherwise, the fresh start of the ECF could be squandered, as the President warned could happen.
Ultimately, the ECF is an important step for Malawi to improve its economy and help lift citizens out of poverty. But implementation is key. Commitment to budget discipline must be matched by actions, not just words. Malawians want to get the country’s economic house in order. And importantly, Malawian citizens must all do what they can to advocate for accountability and good use of public funds and to promote entrepreneurship and a dynamic economy. This is a national project for Team Malawi.
We as the United States and other international partners will work with government at all levels, the private sector, civil society, and empowered citizens to help push for a more prosperous Malawi. These are tough economic times, but with continued hard work Malawi can move to a better future. Malawians want results, and we as partners do too.
America ndi Malawi ndi pachibale!