BY DAYO ADESULU
The International Monetary Fund has approved a disbursement of US$91 million under the Rapid Credit Facility to help Malawi meet the urgent balance of payment (BOP) needs stemming from the COVID-19 pandemic.
The pandemic is expected to have a significant impact on Malawi including affecting the near-term economic outlook, which has deteriorated significantly.
The authorities have proactively responded to the pandemic with a national response plan — supported by the World Health Organization and other development partners — and measures to preserve macroeconomic stability while protecting the vulnerable.
The Executive Board of the International Monetary Fund (IMF) approved a disbursement under the Rapid Credit Facility (RCF) equivalent to SDR 66.44 million (US$91 million or 47.9 per cent of quota) to help Malawi meet the urgent balance of payment (BOP) needs stemming from the COVID-19 pandemic.
Malawi is being severely affected by the COVID-19 pandemic. Spillovers from the sharp global slowdown as well as the economic disruption in the region are weighing on international trade, tourism, remittances, investment, and consumption.
The national lockdown introduced to contain the pandemic has also impacted the near-term economic outlook, which has deteriorated significantly, with large uncertainties surrounding the duration and spread of the pandemic.
The COVID-19 pandemic is having a severe impact on Malawi, creating an urgent balance of payments need.
The authorities have proactively responded to the pandemic with a national response plan — supported by the World Health Organization and other development partners — and measures to preserve macroeconomic stability while protecting the vulnerable. Key elements include increased health sector outlays, supporting incomes and food security of the most vulnerable households with expanded social assistance and grain purchase programs, and easing liquidity constraints in the banking system.
The deteriorating macroeconomic outlook and policy responses to mitigate the impact of the pandemic on Malawi are creating an urgent BOP need. IMF financing will help fill part of the external financing gap and catalyze another concessional financing.
Following the Executive Board’s discussion of Malawi, Mr Zhang, Deputy Managing Director and Chair issued the following statement:
“The COVID-19 pandemic is having a severe impact on Malawi, creating an urgent balance of payments need.
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The authorities have been proactive in mitigating the impact of the pandemic, including through increased spending on health care and social assistance, supporting small and medium enterprises, bolstering farmers’ incomes and ensuring food security through purchase and storage of agricultural harvests, and easing liquidity constraints in the banking system.
“The IMF’s emergency financing under the Rapid Credit Facility will help the authorities meet the large external financing gap and catalyze further assistance from the international community.
Additional concessional donor support will be critical to close the remaining external financing gap and facilitate the needed interventions to ease the economic and social impacts of the pandemic while preserving Malawi’s hard-earned macroeconomic stability.
“A widening of the budget deficit is appropriate in the near-term, given the fiscal costs associated with the economic slowdown and critical additional health care and social spending needs, which should be executed transparently and targeted to the most affected parts of society.
The authorities’ commitment to the audit of COVID-19 related spending is welcome. Once the crisis abates, it will be important to safeguard medium-term debt sustainability by boosting domestic revenue mobilization and enhancing public financial management.’’
