January 5, 2013 / 11:51 AM / 6 years ago

IMF's Lagarde asks Malawi to stick to painful reforms

* Malawi inflation at 33 pct in December

* Banda restores crucial aid flow

By Mabvuto Banda

LILONGWE, Jan 5 (Reuters) - IMF chief Christine Lagarde has urged Malawi to stick with economic reforms that have stoked inflation and eroded public support for the new leader of the impoverished southern African nation.

Malawi President Joyce Banda, who took office about a year ago, has been trying to rebuild an economy sent into a tailspin by her predecessor, but prices have soared since she devalued the currency on International Monetary Fund advice.

“There have been huge efforts undertaken by the Malawi government and the Malawi population and it is really important to stay on course,” Lagarde told a forum of business women.

She is on a two-day visit to Malawi that started on Friday.

The economy of the aid-dependent country had been teetering under former President Bingu wa Mutharika, who picked fights with donors. The cut in aid, which has traditionally accounted for 40 percent of the budget, coincided with a steady decline in sales of Malawi’s biggest cash crop, tobacco.

Banda assured Lagarde that Malawi will not abandon reforms.

“I know that people are hurting but we have to go through this for us to start doing better and move our people out of poverty,” Banda said.

Banda, who took office in April 2012 after Mutharika died of a heart attack, has restored aid flows, taken a personal pay cut and put her predecessor’s presidential jet up for sale.

But soaring commodity prices have made her unpopular, pushing inflation to 33.3 percent in December - far higher than the forecast of around 18 percent for calendar year 2012.

Banda’s reforms have been slowed by the kwacha currency’s persistent weakness and by troubles in implementing social reforms.

In June 2012, the IMF and Malawi agreed to a 3-year, $157 million package to support the economy.

In November, the IMF cut its growth forecast for Malawi for 2012 to 1.9 percent from 4.3 percent, citing a slowdown in manufacturing and agriculture. Tobacco earnings have fallen from $416 million in 2010 to $177 million in 2012. (Editing by Jon Herskovitz/Ruth Pitchford)

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