* Approved on Monday, November 20, the grants is to avert acute shortages of critical and lifesaving commodities
* The contingent financing to import fertilizers and pharmaceuticals will address critical shortages in the market
* Which, if left unaddressed, have the potential to hinder Malawi’s economic recovery
By Laison Kamkole
The World Bank’s International Development Association (IDA) has approved a US$60 million grant which will be accessed by commercial banks in Malawi for importation of fertilizers and pharmaceuticals.
A statement from Washington, USA says the grant — which the World Bank’s Board of Executive Directors approved on Monday, November 20 — is aimed at averting acute shortages of critical and lifesaving commodities.
The statement further says the contingent financing to import fertilizers and pharmaceuticals will address critical shortages in the market which, if left unaddressed, have the potential to hinder Malawi’s economic recovery.
The project, ‘De-risking Importation of Strategic Commodities’ (DISC), will establish a foreign currency trade facility for Malawi’s commercial banks — and specifically, it provides backstopping support on the payment obligations of local issuing banks to their correspondent banks, targeting the import of fertilizers and pharmaceuticals.
Currently, says the statement, “correspondent banks lack confidence to extend letters of credit to banks in Malawi due to the high-risk profile of local banks”.
“The proposed facility will, therefore, provide correspondent banks with the assurance that the World Bank, standing behind the Reserve Bank of Malawi (RBM), will assume the payment obligations of the local issuing banks in the unlikely event that local banks default on their payment obligations for essential commodities.”
The statement quotes World Bank Country Manager for Malawi, Hugh Riddell saying: “The DISC project aims to support economic recovery in Malawi with a specific focus on the private sector.
“The project complements the government-led macro-fiscal reforms under implementation and aims to restore the long-term functioning of markets,” he said.
This three-year project builds upon existing World Bank, International Finance Corporation (IFC) and Government of Malawi programs on enhancing access to trade finance, including the Global Trade Finance Program (GTFP), and lessons learned from prior projects, including the Financial Inclusion & Entrepreneurship Scaling Project (FINES).
The project will also help local financial institutions establish working partnerships with correspondent banks and increase their credit lines and reduce cash collateral requirements, eventually enabling the continued flow of trade credit into the market at a time when imports are critical.
On his part, Minister of Finance & Economic Affairs, Simplex Chithyola Banda is quoted as saying: “We are trying to restore stability in the macro-economic situation with a view to revive the wider economy. The stable importation of strategic commodities is a critical element of our recovery.
“We have requested the World Bank for this project to boost confidence in our local commercial banks and we are therefore very optimistic this operation will create a timely mechanism, alongside the recently agreed extended credit facility (ECF) with the International Monetary Fund (IMF), to ensure continuous availability of life saving and agricultural commodities.”
The Minister is expected to represent the Malawi Government in signing the financing agreement with a deferred drawdown option, while the RBM will be the main implementing agency for this operation.
The World Bank’s IDA, established in 1960, helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty and improve poor people’s lives.
IDA is one of the largest sources of assistance for the world’s 74 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change to the 1.3 billion people who live in IDA countries.
Since 1960, IDA has provided US$458 billion to 114 countries with annual commitments averaging about US$29 billion over the last three years (FY19-FY21) — with about 70% going to Africa.
Soon after the IMF approved Malawi’s ECF, President Lazarus Chakwera said one of the substantial benefits of the facility is the unlocking of foreign investments, with several development partners already committing substantial financial facilities.
He said as a result of the confidence Malawi gained from the IMF, 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 this 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 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.