By Deogratias Mmana:
The European Union (EU) has said it is ready to give budgetary support to Malawi on condition that the country attains International Monetary Fund Extended Credit Facility (ECF) status.
EU Ambassador to Malawi Rune Skinnebach told Malawi News that the ECF is a conditionality for development partners to pour their resources into Malawi.
“Extended Credit Facility would not necessarily rectify the structural deficiencies. It will [instead] bring in forex; it will have a catalytic effect on development partners, including the EU. It is a conditionality for us to give budgetary support [when] the ECF materialises. I hope it will come so [that] it paves the way for our budgetary support and also support from other development partners,” Skinnebach said.
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He said he hopes that when the ECF finally comes to Malawi, it would help create a more conducive business climate which will attract foreign direct investors to Malawi, the way things are panning out for countries such as Zambia and Botswana.
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Skinnebach called for attractive taxes, land laws, crop laws, forex laws, among others, that would motivate investors to remain in the country.
According to Skinnebach, the IMF team is expected in the country either by the end of August or early September for the second assessment of the programme based on June 2023 targets.
Reserve Bank of Malawi Governor Wilson Banda said on Thursday that Malawi has made remarkable progress in putting its house in order ahead of the second review of the Staff Monitored Programme with executive board involvement (PMB) by the IMF.
A successful completion of the PMB would see Malawi graduating to an upper credit tranche, the ECF.
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“We are hoping that, by the time we go to the IMF board for final discussions on ECF, which, in this case, will be scheduled for November, all other things being constant, we are hoping that we would have concluded our discussions on the debt arrangement with our creditors,” Banda said.
In June 2022, the IMF released a statement at the end of a weeklong mission in Malawi.
Among other things, the IMF asked Malawi to address what it called the country’s unsustainable public debt and produce a report on allegations the country was giving false information between 2018 and 2020 about the administration of ECF funds.
Malawi’s debt hovers around K7.9 trillion.
Economic expert and lecturer at the Malawi University of Business and Applied Sciences Betchani Tchereni said at the time that the ECF was the only programme that could help bail Malawi out of its dire economic straits.
“I am squarely behind the government on this one; we need the ECF. There might be issues we have, we are trying to do our best. Yes, we have got some bad apples within the system that may not be helping us but the bottom line is that we need those resources,” he said.
According to the IMF, ECF provides medium-term financial assistance to lower income countries with protracted balance of payment problems. The ECF is one of the facilities under the Poverty Reduction and Growth Trust.
Since the suspension of direct budgetary support by a group of multilateral donors in 2014 after the infamous plunder of public resources dubbed Cashgate, Malawi lost up to 40 percent of its budget revenues.
Most of the donor partners have been channeling funds into the country through specific projects as a sign of their continued support to the government.
