By Collins Mtika

Malawi’s Finance and Economic Affairs Minister, Simplex Chithyola Banda, has accused the International Monetary Fund (IMF) of imposing “unrealistic” economic conditions after the Fund halted a $175 million Extended Credit Facility (ECF), marking the second failed programme in five years for Malawi.

The suspension comes as Malawi reels from persistent macroeconomic challenges: foreign exchange shortages, skyrocketing living costs, soaring inflation, and a growing public debt burden.

The IMF’s decision to terminate the facility, which began in November 2023, stems from the government’s failure to complete a single review—a key requirement for continued disbursement.

Speaking in an interview with BBC Radio on Friday, Banda contended that the programme’s collapse was neither surprising nor solely the IMF’s decision.

Instead, he said the Malawian government proactively requested a suspension due to the political sensitivities of implementing tough austerity measures ahead of general elections scheduled for September 2025.

“We are heading towards elections, and it would be extremely difficult to stick to some of the prior actions and structural benchmarks,” Banda said. “In our view, those demands were unrealistic.”

Among the conditions Banda cited were demands to increase fuel prices, freeze public sector hiring, and reduce civil servant wages—measures he said would spark public backlash, cripple public services, and deepen poverty in a country where over half the population lives in poverty.

“If we could do them now, it would plunge our people into deeper economic hardship,” he emphasised, pointing out that the IMF’s requirement to build foreign exchange reserves clashed with efforts to keep fuel stations stocked.

The IMF’s ECF was originally intended to stabilise Malawi’s ailing economy by supporting fiscal reforms, improving public finance management, and bolstering international reserves.

The country has historically relied heavily on IMF-backed programmes, but implementation has often fallen short due to political resistance and structural weaknesses.

This marks the second time since 2019 that an IMF arrangement has fallen through, raising questions about Malawi’s ability to commit to long-term fiscal discipline.

Critics, including the political opposition and civil society, point to rising government expenditure. They also cite weak accountability as a recurring obstacle to reform.

The IMF has echoed those concerns, saying in its most recent assessment that fiscal discipline “has proven difficult to maintain in the current environment due to rising government spending demands”.

Still, despite the programme’s collapse, Banda insists that development partners remain confident in Malawi’s reform agenda.

He pointed to the World Bank’s recent approval of a $350 million loan for the Mpatamanga Hydro Project as a sign of ongoing trust.

“This is nothing but the confidence and trust that our development partners have in us,” he said.

But development experts warn that the loss of an IMF programme often considered a “seal of approval” could rattle bilateral donors and investors, potentially affecting aid inflows and financing terms.

The kwacha has already devalued multiple times in the past year, eroding both consumer purchasing power and investor confidence.

Banda emphasised that the government remains committed to structural reforms but calls for a context-sensitive approach that balances fiscal goals with social obligations.

He confirmed that Malawi intends to renegotiate a new IMF agreement after the elections, when the government may have greater political latitude to implement tough measures.

“We believe that at that time, we’ll be able to come to negotiating tables with the IMF and agree on what we believe will be realistic assumptions,” Banda said.

An IMF delegation is expected to visit Malawi later this month for preliminary discussions, potentially laying the groundwork for a post-election arrangement.

Banda noted that Malawi had fulfilled several of the programme’s benchmarks and expressed hope that future talks would recognise those efforts.

“We have done quite a number of policy reforms… and I believe that [the IMF] will help us have honest talks and discuss those that remain,” he added.

The developments underscore a broader tension between economic stabilisation and political survival in Malawi.

With fuel shortages, food insecurity, and public sector strain already affecting daily life, Banda’s government faces a delicate balancing act: maintaining public support while convincing global lenders of its reform commitment.

Whether a post-election deal with the IMF can succeed where previous ones failed remains uncertain. For now, Malawi stands at a financial and political crossroads—seeking relief without sacrificing its social contract and hoping development partners stay the course.