In light of the growing public outcry following the recent 44% devaluation of the Malawi Kwacha by the Reserve Bank of Malawi, ActionAid Malawi has called for a reform of the International Monetary Fund (IMF) to ensure that the institution champions pro-poor and gender-just macroeconomic policies in the country.
ActionAid Malawi believes the Kwacha devaluation is one of the conditions Malawi Government has undertaken in anticipation of IMF’s Extended Credit Facility (ECF) programme.
The social justice organization has also bemoaned that the devaluation has been effected at the time the country has a yawning public debt of over K8 trillion compounded by acute forex shortage and high inflation which has paralyzed essential public services primarily accessed by women, girls and youth.
Reacting to the Kwacha devaluation, which has led to a sharp price increase of essential commodities, ActionAid Malawi Acting Executive Director, Wongani Mugaba, said it is evident that the devaluation has instantly pushed the majority of people into extreme poverty amidst an already high inflation that people were struggling and failing to cope with.
“This is why as ActionAid Malawi, we call upon IMF to reform and offer ECFs to the government without demanding any conditions.
“The recent devaluation is a reminder of a clarion call for systems change at the IMF and World Bank, to ending regressive tenets as a pre-condition to getting aid. It is a reminder that poverty will only end if there is no attaching of stringent and regressive conditions to aid.
“Developed countries and major development partners must pursue concerted efforts to reform the IMF so that the institution uses its influence and resources progressively to work for people living in poverty,” he said.
ActionAid Malawi further says the impact of the devaluation of the Kwacha outweighs the potential gains from the ECF and calls upon the Malawi government to rework its recently announced cushioning measures to ensure they reach out to more people who are negatively impacted by the Kwacha fall.
The organisation, among others, calls for an upward adjustment of the proposed 520,000 beneficiary households for the Climate Smart Public Works Programme(CSPWP).
It further notes that the re-introduction of the Price Shock Urban Emergency Cash Transfer Program, which is a once off payment of MK150,000 for a period of three months, is not enough.
Weighing in on the measures, Mugaba observed that the cost of living in the targeted city councils of Zomba, Blantyre, Mzuzu and Lilongwe is exorbitantly high and these measures will not cushion them.
“The targeted number of households is also too little and will not cover a large population of the households of people living in poverty in those cities, leaving a majority of them in destitute.
“The projected number of people living in the urban cities is currently at 3.8 million with an estimated 19.2% ( about 729,000) living in poverty, according to the National Statistics Office report, 2020 report. The focus on the major cities is also problematic as those living in poverty are in all the 28 districts,” Mugaba said.
ActionAid Malawi has also made five other calls to government, IMF and development partners. These are:
1. Development partners must immediately resume direct budgetary support to the Government of Malawi, without waiting for the IMF’s nod. The financial support provided should also be able to more than cushion the effects of economic shocks such as this one. It will be of equal importance to align this to Sustainable Development Goals(SDGs) and the Paris Agreements on Climate Change which will put Malawi on the right track to development, for long term impact as opposed to the short-term impact as has been the with the previous ECFs.
2. The IMF and developed countries should invest in public finance management systems intensively in the Public Service, while strengthening oversight functions and institutions such as the Auditor General(AG),Anti-Corruption Bureau(ACB), Financial Intelligence Authority(FIA), Fiscal Police, and the Judiciary Arms that deal with financial crimes. This, again, should not come as a conditionality to getting budgetary support but to address long-time mismanagement and abuse of public funds.
3. Government must own up financing of development programmes by strengthening progressive domestic resource mobilization through taxing appropriately major Multinational investors and stopping of tax incentives that deny Malawi from realizing enough resources for its own development. Studies that have been done show how major companies avoid paying taxes through incentives and double taxation treaties, leaving government to overly rely on regressive tax measures. Government must also immediately increase the tax-free band, reduce and where necessary remove, taxes on basic commodities to cushion people living in poverty particularly women, youth, and children.
4. Government must strengthen public resources management for the Public Service to close loopholes that lead to abuse and waste of already little public resources. This includes strengthening of AG, ACB, FIA, Fiscal Police and the judiciary departments that deal with financial crimes.
5. Government should focus on implementing the cushioning measures immediately, while planning for long-term measures as the shocks as being felt by the people now. The plans for 2024, should also be analyzed and replanned to align with the economic climate.