Chakwera won the confidence of the IMF
* The ECF arrangement is also expected to catalyze grant financing and capital inflows including foreign direct investment and trade credit
* This would pave the way for increased foreign direct investments, fostering productivity and economic stability
Analysis by Laison Kamkole
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 Board of the IMF announced the approval of a 4-year arrangement under the ECF of US$174 million ECF 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.
And in his speech soon after the IMF announced the approval, President Chakwera said as a result of the qualification, several development partners have already lined up a number of financial facilities that will boost the supply of foreign exchange in banks.
Thus he announced a slew of initiatives, including the World Bank’s US$60 million Trade Finance Facility, aimed at bolstering foreign exchange in domestic banks, saying this facility is crucial for supporting the importation of strategic commodities such as fertilizer, pharmaceuticals, and industrial raw materials.
Chakwera also disclosed a comprehensive package from the World Bank, totaling US$217 million, as a response to the fiscal reforms implemented by the government, saying a significant portion of this package, one-third to be exact, will be made available immediately.
The President also said another critical injection is the US$250 million dollars allocated for the Agricultural Commercialization Project (AGCOM), with US$30 million earmarked for the procurement and distribution of maize to address looming threats of hunger.
He further said the benefits extend to international cooperation, with Malawi meeting the requirements for substantial budget support from the European Union (70 million Euros), the African Development Bank (US$30 million), and the International Fund for Agricultural Development (US$6 million).
“These injections of foreign investment from our partners over the next four months will greatly enhance our foreign exchange reserves position and provide the macroeconomic stability needed for economic and business growth,” said the President.
He also underscored that the ECF signals to private sector international investors that Malawi is becoming an investment-friendly economy with reforms meeting international standards.
“This positive environment is expected to power ambitious plans for increased production in agriculture, tourism, and mining, aligning with the government’s ATM Strategy. The ATM Strategy includes scaling up mega farms for exports, reorganizing and monetizing mineral resources for reinvestment, and creating conducive conditions for eco-tourism,” he said.
For local businesses grappling with acute forex shortages, the President assured them of better days ahead, as the investment and business-friendly environment stimulated by the IMF Program presents a fresh opportunity to rebuild the nation’s economy.
The cornerstone of this economic revitalization is seen as a robust private sector, indicating a positive trajectory for Malawi’s economic recovery over the next four months.
Halting of water tariff increase to ease economic impact
And as part of his efforts to alleviate the economic strain caused by the recent devaluation of the Malawi Kwacha by 44%, President Chakwera issued a directive to halt any increase in water tariffs by the country’s water boards.
Announcing the order shortly after the IMF approved the ECF, President Chakwera aims to ensure that Malawians are not burdened by an additional increase in water tariffs.
The water boards in Malawi had sought permission from the government to raise water tariffs following the devaluation. However, President Chakwera firmly stated that any losses incurred should be covered through the water boards’ operational accounts, sparing the citizens from bearing the brunt of additional financial pressure.
In addition to the water tariff freeze, President Chakwera has implemented several other measures to alleviate the impact of the economic downturn.
He has imposed a five-month freeze on all international trips for himself, Cabinet Ministers, senior government officials, and the heads of parastatals — a decision that aims to reduce unnecessary expenditure and redirect funds to more pressing national priorities.
Furthermore, President Chakwera has ordered a 50% cut in fuel allocations for Cabinet Ministers, top government officials and heads of parastatals.
The President emphasized that the savings generated from these cost-cutting measures will be redirected towards the purchase of essential commodities such as maize and fertilizer.
By doing so, the government intends to address the growing food scarcity issue and ensure that the most vulnerable populations receive necessary support.
President Chakwera’s proactive approach in implementing these measures demonstrates his commitment to prioritize the welfare and well-being of the Malawian people during these challenging times.
As the country navigates the economic challenges posed by the recent devaluation, these decisive actions aim to provide immediate relief to the population and set the stage for a more stable future.