UPDATE 1-Malawi workers threaten to shut airport, IMF holds talks

Tue Feb 19, 2013 5:50pm EST

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(Adds IMF statement, paragraphs 10-16)

By Mabvuto Banda

LILONGWE Feb 19 (Reuters) - State workers in Malawi have told the government and airlines they will shut the main international airport in the capital Lilongwe on Wednesday as part of a week-long public sector strike.

The airport closure would cut off the main air routes serviced by Kenya Airways, South African Airways and Ethiopian Airlines.

More than 100,000 public sector workers went on strike last week demanding a 65 percent wage increase - about double the inflation rate - to counter a rising cost of living triggered by a devaluation of the kwacha currency.

"We are joining the strike and are shutting down the airport," Joel Mkandawire, a union leader, told Reuters on Tuesday.

Finance Minister Ken Lipenga said the government cannot afford to increase wage costs and is negotiating with the striking workers.

"Currently our wage bill is 97 billion kwacha ($277 million), and if we agree to their demands, this will almost triple to 276 billion kwacha, which is equivalent to the whole national budget," Lipenga told Reuters.

The strike has closed schools and paralysed major hospitals, which are already short of health workers and pharmaceuticals.

It also has piled pressure on President Joyce Banda, who took office a year ago and instituted painful economic reforms backed by the International Monetary Fund and donors, whose aid traditionally accounts for about 40 percent of the budget.

"I want to go back home because I can't get any help and I have seen people dying because no nurses or doctors are attending to us," Sugzyo Phiri said from her hospital bed where she is seeking treatment for malaria.

The growing public disquiet over falling living standards, perceived government waste and corruption was discussed by a visiting IMF mission and the authorities, the IMF said in a statement at the end of its visit on Tuesday.

IMF mission chief to Malawi, Tsidi Tsikata, said there were "encouraging signs" that Malawi's economy is on the mend, with foreign exchange more available and good rains set to increase farm output.

Tsikata said the devaluation of the currency "seems to be stimulating the production of exports and import substitutes while restraining demand for imports."

"It also discussed the scope for policy actions to stabilize the exchange rate and lower inflation," Tsikata added.

Given budgetary pressures, Tsikata said the IMF suggested tightening expenditure controls even more, welcoming a moratorium announced in December on government-funded travel.

It also recommended cutting or postponing non-essential spending.

The IMF said it would ask its board in late May to release the next tranche - about $20 million - of a $156.2 million IMF loan approved in July last year.

(Additional reporting by Lesley Wroughton in Washington; Editing by Jon Herskovitz, Alistair Lyon and Philip Barbara)

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