IMF Executive Board Approves US$88.3 Million in Emergency Financing Support to Malawi
IMF News, November 21, 2022
Source details
- Canonical URL
- IMF Executive Board Approves US$88.3 Million in Emergency Financing Support to Malawi
Other formats
Bibliographic details
- Published: November 21, 2022
Emergency financing approved
- The Executive Board approved a disbursement of US$88.327 million (SDR 69.40 million) to Malawi under the Food Shock Window of the Rapid Credit Facility (RCF).
- The Food Shock Window provides, for a period of a year, a new channel for emergency Fund financing to member countries with urgent balance of payments needs due to acute food insecurity, a sharp increase in their food import bill, or a shock to their cereal exports. [1]
Humanitarian and economic context
- Causes of the crisis cited: multiple tropical storms, below-average crop production, and increasing prices for food and agricultural inputs such as fertilizer and seed.
- Food insecurity projection: about 20 percent of the population is projected to be acutely food insecure during the upcoming 2022/23 lean season (October 2022-March 2023), or more than twice as many people as in 2021.
- Consequences: foreign exchange shortages and an exchange rate misalignment have led to a sharp decline in imports including fuel, fertilizer, medicine, and food.
Program monitoring and path to an upper credit tranche (UCT)
- Management approved a 12-month Staff-Monitored Program (SMP) for Malawi on November 11; the Executive Board discussed the SMP and assessed the policy program as sufficiently robust to meet the SMP’s objectives and to build a track record toward a UCT-quality Fund arrangement.
- The Board noted its October 4, 2022 amendment allowing Program Monitoring with limited Board involvement (PMB), and assessed that limited Board involvement is appropriate given concerted international efforts by creditors and donors and Malawi’s significant outstanding Fund credit under emergency financing instruments. [2]
Policy guidance and recommended actions from IMF Management and Board statement
- Fiscal policy:
- Emphasize fiscal discipline supported by a realistic budget.
- Enhance the Public Financial Management system and ensure timely production of comprehensive fiscal reports.
- Price and financial stability:
- Restore price stability and ensure financial sector stability to help build a foundation for private sector-led growth.
- External buffers and central bank strategy:
- Rebuild external buffers to reduce vulnerabilities to external shocks.
- The Reserve Bank of Malawi’s (RBM) commitment to rebuild foreign exchange reserves is welcome; this requires implementing a strategy to wind down unsustainable policies including excessive use of swaps and trade credit to maintain strategic imports and other quasi-fiscal operations.
- Debt sustainability and restructuring:
- While debt is sustainable on a forward-looking basis, risks to the program are high.
- Swift implementation of the authorities’ debt restructuring strategy is critical to bring Malawi back to moderate risk of debt distress in the medium term.
- The ongoing credible process to restructure commercial creditor claims would restore debt sustainability albeit with high risk; swift progress is also needed on reprofiling official bilateral debt.
- A concerted effort among the authorities, their creditors and international development partners is crucial for successful implementation of the debt restructuring strategy.
- Governance, institutions, and transparency:
- Address weaknesses in governance and institutions and enhance transparency.
- Implement strong corrective actions to address issues that led to misreporting under the 2018 ECF, including implementation of the recommendations of the 2021 safeguards assessment.
- Strengthen foreign exchange reserve management.
- Timing and program progression:
- The authorities are urged to move to a UCT-quality program as soon as feasible.
Definitions and program modality notes
- SMPs are informal agreements between national authorities and IMF staff to monitor the authorities’ economic program and do not entail endorsement by the IMF Executive Board.
- Under recent reforms to SMP policy, the Executive Board, in specified circumstances, has limited involvement that does not amount to endorsement; the Board’s role is limited to (i) opining on the robustness of the member’s policy program to meet the objectives stated in the Management-approved SMP and to achieve the purpose of building or rebuilding a track record toward a UCT-quality program, and (ii) in the context of reviews, indicating if the member is on track to achieve these objectives. [2]
Source: IMF Press Release No. 22/404, November 21, 2022