May 29, 2017 / 1:49 PM / 6 months ago

Malawi's hopes aid embargo to be lifted after World Bank support resumed

LILONGWE, May 29 (Reuters) - Malawi hopes global lenders will release funds frozen over a government graft scandal three years ago now that the World Bank has resumed its budget support programme, Finance Minister Goodall Gondwe said on Monday.

The World Bank decision early this month to restore budget support signals a return of donor confidence in Malawi, he told Reuters. This support traditionally accounts for about 40 percent of the budget of the poor southern African country.

Western donors led by former colonial ruler Britain froze budget support over a corruption scandal in which public servants siphoned millions of dollars from the public purse.

“The recent resumption of the World Bank budgetary support, the expected confirmation by the IMF that Malawi is on track in its pursuance of fiscal management reforms as well as the pending EU resumption of budgetary support, are all signs of international confidence coming back in our economic management,” Gondwe said.

Announcing the $80 million budget aid early in May, Laura Kullenberg, the Bank’s country manager, said Malawi had taken some very crucial reform steps and it was critical to maintain the momentum.

Gondwe said that although economic activity in 2016 remained subdued at 2.7 percent from 3.3 percent previously, the austerity measures being implemented are bearing fruits as signs of recovery start to emerge

“The strong fiscal and monetary policies, which were reinforced by the IMF, have sustained this recovery which is continuing into 2017 and is strongly expected to continue to gather strength in 2018,” he said.

He said inflation has steadily declined to 14.6 percent in April 2017 from 24.3 percent in July 2016 thanks to declining food prices, a stabilising kwacha currency, lower global fuel prices and fiscal adjustments made since 2014.

The exchange rate remained fairly stable in the second half of 2016 up to May 2017 depreciating by only 2.0 percentage points against the dollar in that period, Gondwe said.

This was due to a seamless supply of foreign exchange that the country experienced in 2016 and the first quarter of 2017, he said. (Editing by James Macharia and Tom Heneghan)

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