By Lovemore Khomo
The International Monetary Fund-IMF has approved and Extended Credit Facility of about $174 million equivalent to K200 billion for Malawi after a long time of discussions between the two sides.
In a statement, IMF said both sides reached a staff-level agreement following the second and last Review of the Staff Monitored Program with Executive Board Involvement (PMB), and macroeconomic and financial policies and reforms to be supported by a new 48-month financing arrangement under the Extended Credit Facility (ECF) of about $174.00 million.
The agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances.
Leader of the IMF Mission Ms. Mika Saito said in a statement explained that building on the track record under the PMB, the proposed ECF-arrangement will support the authorities’ ongoing efforts to restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth envisaged under Malawi 2063.
The arrangement is expected to catalyze grant financing to support the projects that might deal with economic shocks the country gone through. She said, “Securing debt restructuring with bilateral official and external commercial creditors will be key to restore medium-term debt sustainability.”
“Access under the arrangement could be up to SDR 131.86 million about $174.00 million, representing 95 percent of Malawi’s IMF quota over a period of four years. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Malawi’s partners and creditors.” elaborated Saito.
“Malawi is recovering from a series of shocks, including an outbreak of cholera and cyclone Freddy. Real GDP growth is projected to increase to 1.6 percent in 2023, with shortages of foreign exchange still weighing on economic activity. Inflation is expected to average 30.3 percent in 2023 and to decline to around 7 percent in the medium-term.”
IMF official also commended Malawi government for stepping up efforts to meet fiscal targets under the PMB, adjusting expenditure to offset a shortfall in revenue, and containing government borrowing to slow money growth.
For instance, The Reserve Bank of Malawi (RBM) tightened the monetary policy to contain inflationary pressures and resumed foreign exchange auctions. Rebuilding foreign reserves of the RBM has been slow as access to trade credit remains limited since the beginning of the year.
“The prospective ECF-supported program will aim at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, addressing weaknesses in governance and institutions, and strengthening resilience to climate-related shocks.
Fiscal policy will aim at achieving a debt-stabilizing primary balance in the medium-term through a package of expenditure adjustment and revenue mobilization measures. The authorities are committed to applying fiscal discipline, containing domestic borrowing, and improving public financial management.” She said.
Consideration by the IMF Executive Board is scheduled for mid-November 2023.
This comes as Malawi was highly engaged with IMF in order to get an Extended Credit Facility-ECF, and recently president Lazarus Chakwera met the IMF leader of mission at Kamuzu Palace last month.
