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IMF’s temporary relief for Malawi

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Leslie Fatch

The International Monetary Fund (IMF) Board on Monday approved the disbursement of $88.3 million—an equivalent of about 64 percent of Malawi’s $250 million monthly import bill— under the Rapid Credit Facility.

Albeit seen as meagre considering current needs, the amount remains essential for forex-starved Malawi, where both the Reserve Bank of Malawi (RBM) and commercial banks have lately been seen rationing supply of the greenback, a clear indication that the coffers are almost dry.

Both Malawi’s Chancellor of the Exchequer and the head of the central bank are on record to have said the country desperately needs donor-inflow as an immediate-term remedy to the forex situation.

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Malawi requires more forex inflows to improve the Balance of Payment (BoP) position and cushion prevailing pressure of supply for essential commodities like fertiliser and fuel, which have been scarce lately.

The country needs about $3 billion per year to finance its import bill, but only generates $1 billion. And fuel imports requirement, pegged at $600 million per annum, forms a larger part of the bill.

The IMF funding, therefore, is to help Malawi address that urgent BoP need related to the global food crisis, according to a statement issued on Monday.

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The Fund also requested the Staff-Monitored Programme and Programme Monitoring with Board involvement to build a track record of policy implementation, possibly paving the way for an IMF-supported Upper Credit Tranche (UCT)- quality programme.

Experts say apart from the forex inflow, the IMF nod signals hope for support from other development partners.

Financial Market Dealers Association President Leslie Fatch said focus should be on the signalling effect it has to allow other developing partners to assist our economy than the direct impact it has on the BoP.

“Technically, we all know the RCF is only meant to be concessional assistance to support economies with serious negative balance of payment mismatches and is provided where a fully-fledged economic programme is not necessary or feasible. So, under normal circumstances, we should not be celebrating drawing on the RCF.

“But considering our economic situation though, what we need are structural changes that should be implemented to support our BoP in the long run, which most likely will be part of the conditions for RCF itself,” Fatch said.

He said, in the long-run, the country needs structural changes by putting in place effective policies that will incentivise investment in production for import substitution while taming the appetite for imports.

Economist Gilbert Kachamba said the money would still provide some relief to the economy but more needs to be done to find a lasting remedy.

“Yes, these funds will not sustain us for a period of more than a month, but if we are to look critically at the window, it has been given to us to address the food shocks. So, if we are to use these for the intended purpose, I think we are going a mile to ensure food security,” Kachamba said.

RBM Governor Wilson Banda said in an interview recently the country is looking at interventions from donors.

“It is not the best thing to say but we are banking on a programme with the IMF…That will probably provide the liquidity in the short-term and that will take us into next year,” Banda said.

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