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Malawi, IMF start Rapid Credit Facility talks today

Sosten Gwengwe

The Malawi Government and the International Monetary Fund (IMF) Mission will from today to October 17 engage in discussions aimed at reaching a Rapid Credit Facility (RCF) programme.

RCF provides rapid concessional financial assistance to low-income countries facing an urgent balance of payments need with no ex-post conditionality where a full-fledged economic programme is neither necessary nor feasible.

The RCF negotiations come at a time Malawi has been vigorously pushing for an Extended Credit Facility (ECF) programme since the start of the year.

Finance Minister Sosten Gwengwe confirmed the development Tuesday, saying the two sides opted to engage in RCF negotiations because Malawi has an acute balance of payment (BoP) shock and needs bridging finance while moving towards ECF.

The RCF negotiations are expected to take a hybrid format involving both physical and virtual meetings.

The programme was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the fund’s financial support more flexible and better tailored to the diverse needs of low-income countries, including in times of crisis.

Malawi is currently facing a forex squeeze which is threatening importation of strategic commodities such as fuel, fertiliser and medicines.

The IMF supports countries under the RCF through three windows, namely regular window, exogenous shock window and large natural disaster window.

The regular window caters for urgent BoP needs caused by a wide range of sources including domestic instability, emergencies and fragility.

The exogenous shock window is for urgent BoP needs caused by a sudden, exogenous shock; while the large natural disaster window is for urgent BoP needs arising from natural disasters where damage is assessed to be equivalent to or exceed 20 percent of the member’s GDP.

Access under the RCF is subject to annual and cumulative limits, with higher access limits applying for the large natural disaster window.

Gwengwe could not indicate how much Malawi will be pushing for under the RCF programme.

“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,” the minister said.

Last week, President Lazarus Chakwera had a meeting with IMF Director Kristalina Georgieva at IMF headquarters in Washington, where the two 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 to 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.

Two years ago, the Tonse Alliance administration cancelled the ECF and expressed interest in discussing a new programme better aligned with their new long-term growth and reform strategy.

The cancellation resulted in the country forfeiting $70 million under the three-year ECF programme.

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