Malawi’s $175 million loan programme from the International Monetary Fund has been terminated after no review was completed over an 18-month period, the fund said late on Wednesday.

The donor-dependent Southern African country only received an initial disbursement of $35 million under the four-year Extended Credit Facility approved in November 2023.

The IMF said the programme was not able to restore macroeconomic stability.

Inflation is running at over 30% in annual terms, while crippling foreign exchange shortages have curbed key imports such as fuel and fertiliser.

“Fiscal discipline has proven difficult to maintain in the current environment due to elevated spending pressures and insufficient revenue mobilisation efforts,” the IMF said on its website.

It said the country’s foreign exchange system had made it difficult to rebuild international reserves and its external debt remained unsustainable because it had not been fully restructured.

Malawi’s finance ministry said the government would seek to negotiate a new IMF programme after national elections in September.

It said government efforts to stabilise the economy had been dogged by “exogenous shocks” like a cholera outbreak, cyclones and last year’s El Nino-induced drought.

Reuters

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An escalation of fighting in eastern Democratic Republic of Congo has strained the Central African nation’s public finances, the International Monetary Fund said on Tuesday.

Rwanda-backed M23 rebels have staged an unprecedented advance in eastern Congo this year, triggering a fresh cycle of violence in a decades-long conflict in a region rich in minerals including tantalum and gold.

The rebels seized Goma, eastern Congo’s largest city, in late January and Bukavu, the area’s second-largest, weeks later.

The closure of revenue collection offices in M23-controlled regions, combined with measures to ease living costs by exempting basic food products from customs duties and value-added tax, “have led to a revenue shortfall”, the IMF said in a statement after a visit to Congo’s capital Kinshasa.

Elevated security spending has also put pressure on the budget, the statement said. The finance ministry announced in March it was doubling salaries for soldiers and police in an apparent bid to boost morale.

The IMF said it had reached a staff-level agreement on the first review of Congo’s three-year economic and financial programme under its extended credit facility.

“The government has reaffirmed its commitment to the objectives of ECF-supported program, which has been recalibrated to reflect the new realities following the intensification of the conflict,” the statement read.

It also said the programme would help safeguard fiscal sustainability while enabling adequate fiscal space for pressing security and humanitarian needs.

The United Nations and Western governments say Rwanda has provided arms and troops to M23. Rwanda denies backing M23 and says its military has acted in self-defence against Congo’s army and a militia founded by perpetrators of the 1994 genocide.

Reuters

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South African Finance Minister Enoch Godongwana said on Thursday he will not resign after the government’s U-turn on a planned value-added tax hike, despite opposition calls for him to quit.

“My job is to introduce money bills – nothing says they must be popular,” he told Reuters on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington.

Godongwana, who landed in the U.S. capital this week already grappling with the worst rift in U.S.–South African relations in decades, was forced on Thursday to scrap a rise in the value-added tax that threatened the stability of the ruling coalition government.

The proposal to raise the VAT by 1 percentage point over two years, which was intended to boost state revenue, met resistance as Africa’s most industrialized economy grapples with sluggish growth and public discontent over rising living costs.

The about-turn blows a 75 billion rand ($4 billion) hole in the medium-term budget and leaves Godongwana with the task of drawing up what he said was “a different fiscal framework in line with the new realities of revenue and spending.”

“I still maintain that if the purpose for which the VAT was raised is taken into account, its reversal will have a negative impact on those issues – that cannot be disputed,” he said.

The revamped fiscal framework will be keenly watched by S&P Global Ratings, which currently has a positive outlook on South Africa.

A credible outcome could secure the first credit rating upgrade for South Africa in two decades, while the opposite could raise future borrowing costs and dent investor appetite for the country.

“If you ask me, I don’t think what will inform them is the noise,” Godongwana said. “What will trigger them is whether the final product is a sustainable budget.”

Reuters

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