IMF’s ECF unlocks US$240 million more

Finance Minister in Parliament today

* The 2023/24 revised national budget has oozed more optimism and hope following various measures that Government has put in place

* To cushion Malawians on the shocks of the recent devaluation of the Kwacha

By Laison Kamkole

In his presentation in Parliament of the 2023/24 revised national budget Minister of Finance Simplex Chinthyola Banda said the International Monetary Fund (IMF) approval of the extended credit facility (ECF) for Malawi will unlock more than US$240 million (almost MK404 billion).

The 2023/24 revised national budget has oozed more optimism and hope following various measures that Government has put in place to cushion Malawians on the shocks of the recent devaluation of the Kwacha.

The new ECF in itself is worth about US$174 million and is expected to bolster the country’s Balance of Payments (BoP)- a record of transactions between Malawi and the rest of the world.

Presenting the revised budget, the Finance Minister brought more sweeter news to Malawians, announcing a flurry of more expected inflows to be injected into the economy on the back of the new IMF programme.

The resources are a first of its kind to be disbursed to President Lazarus Chakwera’s administration since the plunder of resources that occurred in 2013, popularly christened Cashgate.

For instance, Chithyola Banda says Malawi will receive US$80 million direct budget support from World Bank, which is currently ranked the country’s largest multilateral creditor through its development arm, the International Development Association (IDA).

The country is also set to get US$30 million from the African Development Bank (AfDB) as well as 60 milion euros from the European Union (EU).

According to the Minister, the country is also set to benefit from the recent austerity measures that President Chakwera announced recently including the suspension of foreign trips as well as the slashing of benefits for monsters and other senior government officials.

He said, for example, about MK4.2 billion will be saved from the cutting of the said benefits and that the money will be rechanelled towards productive sectors of the economy — such as the mega farms programmes which is one of the flagship campaign promises by President Chakwera administration.

As a cushion, Chithyola Banda says the provision of wages and salaries has been revised upwards by MK80 billion from its approved MK900 billion to MK938 billion, stressing that such a provision is meant to cushion civil servants from the recent Kwacha realignment which saw the local currency being devalued by 44%.

One of the substantial benefits of Malawi’s qualification for the extended credit facility (ECF) programme from the International Monetary Fund (IMF), is the unlocking of foreign investments, with several development partners already committing substantial financial facilities.

The IMF Board announced the approval of the 4-year arrangement under the ECF of US$174 million programme with an immediate disbursement of US$35 million to support the country’s “macroeconomic adjustment and reform agenda aimed at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, and addressing weaknesses in governance”.

In its statement, the IMF took cognizance that Malawi “continues to face a challenging macroeconomic environment” and that “years of unsustainable domestic and external borrowing and the adverse impact of multiple external shocks have resulted in the widening of macroeconomic imbalances, including protracted balance of payment needs”.

The statement continues to say that the country “has struggled to sustain growth for decades despite large inflows of official development assistance” and that in the past three years of President Chakwera’s administration, there have been “particularly difficult with stagnating growth and widening macroeconomic imbalances due to unsustainable debt and the effects of multiple shocks — including an outbreak of cholera and Cyclone Freddy this year alone”.

“Malawi’s external debt is unsustainable and debt service needs are eroding limited fiscal space. Despite sizeable external emergency financing, the large fiscal budget deficit necessitated domestic financing.

“This has been addressed in large part through monetary financing, putting pressure on the exchange rate and increasing the rate of inflation. The ECF arrangement aims to support the authorities’ commitment to restore macroeconomic stability, build a foundation for inclusive and sustainable growth, including to strengthen resilience to climate-related shocks, and address weaknesses in governance and institutions.

The IMF further said the ECF arrangement is also expected to catalyze grant financing and capital inflows including foreign direct investment and trade credit, which Chakwera attested that this would pave the way for increased foreign direct investments, fostering productivity and economic stability.