An International Monetary Fund (IMF) Executive Board meeting in Washington DC, the United States, Wednesday approved a four-year $174 million Extended Credit Facility (ECF) programme for Malawi.
Sources in Washington and Finance Minister Simplex Chithyola Banda confirmed the development.
The last time Malawi had an ECF programme with the IMF was in 2020 before it was cancelled.
Chithyola Banda described Wednesday as a great day for Malawi’s economic turnaround strategy.
“Sacrifices that Malawians made will result in economic recovery. Time has come now with this economic breather, that we focus on growing our economy.
“My work now is to hit the ground running with these recovery plans. I told Malawians that time has come to make tougher, painful, but important, decisions,” the minister said.
Reserve Bank of Malawi Governor Wilson Banda said authorities worked hard for the ECF and that Malawians sacrificed a lot to get here.
“Rebuilding the economy starts now and we are ready to play our part,” Banda said.
Economics Association of Malawi (Ecama) President Betchani Tchereni said the granting of the ECF has come as “a great relief” to Malawi.
Tchereni said the unlocking of assistance from IMF-linked development partners could help in boosting the country’s thin foreign exchange reserves, which sank below one month of import cover in recent months.
“But we must advise officials in government that these resources must not be used for globetrotting, purchasing of goods that may not be very important, trainings and the like.
“These are resources which must be used for what they are intended for and that is economic stabilisation. Let’s hope that everyone will use these resources for exactly that,” Tchereni said.
Blantyre-based economist Mervin Banda said Malawians should only be hopeful about the ECF if, and only if, the government follows the IMF’s structural adjustment programme diligently and with great conviction for the public sector.
He said the ECF should be followed by vigorous efforts to restructure public debt as well as seeking forgiveness on as much foreign debt as possible.
“These, along with prudent fiscal policy, will offer a much needed ray of sunshine in the dark growth period of Malawi,” Banda said.
On his part, EU Ambassador to Malawi Rune Skinnebach said the ECF will mean both good news and bad news for Malawi.
“Good news because Malawi will begin to restructure its economy to become more sustainable to live up to the expectations indicated in Malawi 2063 but also to know the criteria of an economy; an economy that should be self-sustainable, that should embrace private initiatives that should foster development.
“It’s a project which we will do our utmost to support. We will try to cushion the negative effects of the devaluation by front-loading as much as we can, hopefully around €60 million. And, of course, it will allow us alongside other development partners, like the World Bank, to consider budget support for Malawi,” Skinnebach said.
On the other hand, the EU envoy said the bad news is that the ECF has come at a price.
He said it is like medicine that does not taste well.
“But you need to swallow it to get better. The price of fertiliser may be affected by this. It will be painful. But I think it’s necessary. We will do all we can to cushion the effects of these through our social cash transfer initiatives,” Skinnebach said.
Meanwhile, the United Kingdom (UK) has lauded Malawi for winning the IMF’s confidence.
“This agreement marks the culmination of dedicated efforts by Malawian authorities to restructure Malawi’s unsustainable external debt, to design and implement a realistic budget and to improve the use of public funds through tighter scrutiny and control.
“These reforms and the new financing agreed under the ECF will help to stabilise Malawi’s economy and create the building blocks for investment and growth,” the UK says in a statement.
It further pledges to support the Malawi Government in protecting vulnerable people.
“We are acutely aware of the hardships that Malawians are facing over this period of economic adjustment. To help with this, over the coming months, we will be prioritising additional support for families who don’t have enough to eat, including through providing cash and food.
“There can be no doubt that for the longer-term growth and prosperity that is needed to prevent future hardship, Malawi needs a vibrant private sector and a more diverse economy that can create more jobs,” the statement says.
