International Monetary Fund (IMF) Managing Director Christalina Georgevia has said Malawi is in a very difficult situation as it cannot take up more debt.
Georgevia was speaking at Georgetown University School of Foreign Service on Thursday when she answered a question from a student during a session on ‘Outlook for the Global Economy and Policy Priorities’.
During the session, a first-year student at the university asked Georgevia why IMF support has left countries trapped in more debt.
According to Georgevia, what the IMF does with its programmes is to minimise what it lends and maximise what it brings as a package of support from others and, particularly for low income countries, grant support.
“I will give you an example. We are currently discussing a programme for Malawi. The country is in a very difficult situation. What we want to see is the World Bank coming up with grants; bilateral donors coming up primarily with grants because Malawi cannot take up more debt. Debt is already not sustainable.
“We do lend because by putting money on the table, we are saying to others, it is okay, you can come. This country is taking the right turn on policies,” Georgevia said.
She was quick to note that, oftentimes, people ignore the fact that the IMF is a lender of last resort, lending to countries that cannot borrow elsewhere.
“Well, when you are the lender of last resort, you are lending to a borrower in a very difficult situation. The risks are much higher than a country that could access private capital. And this is something that the public sometimes undervalues that, when we take more risk, of course it may not work.
“The political will may disappear. Our programme may not be anchored well. But should we then say, no, well we stay out of it. No, our job is to be there and like I said to bring others to bring that anchor of trust for the country,” Georgevia said.
Currently Malawi’s public debt stands at K6.38 trillion.
Malawi and an IMF Mission are currently discussing the possibility of having a Rapid Credit Facility (RCF) programme.
The RFC negotiations are happening at a time the IMF is yet to conclude Extended Credit Facility programme negotiations with Malawi.
Last week, Finance Minister Sosten Gwengwe justified the RCF negotiations at a time ECF talks are yet to be concluded.
The fund has cited the need for Malawi to provide a sustainable debt management plan as the major stumbling block standing in between Lilongwe and the IMF ECF.
Gwengwe said last week that Malawi and IMF opted to engage in RCF negotiations because Malawi has an acute Balance of Payment shock and needs bridging finance as Malawi moves towards ECF.
“Countries that are in qualifying shocks can access Rapid Credit Facility to waver some serious shocks as they continue negotiating for ECF.
“So we are doing both in parallel but RCF will disburse immediately but the ECF process with creditors is ongoing,” Gwengwe said.
Two weeks ago, President Lazarus Chakwera had a meeting with Georgieva at IMF headquarters in Washington DC, USA, where they discussed the difficult economic situation facing Malawi.
In a statement after the engagement, Georgieva said she was impressed by Chakwera’s unwavering commitment to forge ahead with ambitious reform efforts to help improve the lives of the Malawian people and firmly restore macroeconomic stability, including tackling unsustainable public debt.
“I reiterated to the President the fund’s resolute support for his country and for the people of Malawi. In this regard, the IMF’s staff is working steadfastly with the President’s economic team with a view to the IMF staff team visiting Malawi very soon to discuss next steps and explore options to address Malawi’s immediate financing needs and support its reform programme.
“We agreed that tackling the country’s economic challenges effectively calls for a concerted effort by all stakeholders, including the support of the international community,” Georgieva said.