1. The COVID-19 pandemic’s economic impact has deepened against a backdrop of rapidly accelerating cases since June. As of September 16, there were around 5700 confirmed cases and 178 deaths (Text Figure 1). The authorities, with the support of the World Health Organization and other development partners, continue to strengthen the health system and implement a response plan. A partial lockdown1 was instituted after the first confirmed cases in April, but the number of cases accelerated during June-August. The effects of the partial lockdown and a considerably worsened global and regional economic situation (compared to IMF Country Report 20/168) are intensifying already hefty economic pressures.
Malawi’s debt carrying capacity is classified as “medium” according to the composite indicator (CI) score. Malawi’s CI score based on the current vintage (2019 CPIA and 2020 April WEO) is 2.72 and remains unchanged from the previous DSA (April 2020)—both above the threshold value of 2.69 for weak debt carrying capacity.
The temporary increase in access limits under IMF emergency financing instruments will expire on October 5, 2020, unless extended. Access limits under emergency instruments (the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI)) were increased in April 2020 for a period of six months, from 50 to 100 percent of quota annually and from 100 to 150 percent of quota cumulatively. The increased limits are subject to review and can be extended before their expiration.
It is proposed to extend the period of higher access limits for emergency financing for a period of six months, through April 6, 2021. Against a background of continued pandemic-related disruption, staff expects there could be significant demand for emergency lending in the October 2020–April 2021 period, including from countries with pending requests and from countries that received emergency support at levels less than the maximum amounts available. A six-month extension would give more time for countries to benefit from higher access limits under emergency financing.
This paper discusses Malawi’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 pandemic is having a severe impact on Malawi, creating an urgent balance of payments need. 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 RCF is expected to 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.